No. 30900 - Verizon West Virginia, Inc. et al., Weirton Steel
Corporation
v. West Virginia Bureau of
Employment Programs, Workers'
Compensation
Division
No. 30901 - Verizon West Virginia, Inc. et al., Pine Ridge
Coal Company v. West
Virginia Bureau of
Employment Programs, Workers' Compensation
Division
Davis, Justice, dissenting:
In this proceeding three employers, who are self-insured for workers'
compensation purposes, appealed an order of the circuit court obligating them to share the
burden of retiring a six billion dollar debt
(See footnote 1)
that was caused by the State's failure to maintain
a Second Injury Reserve Fund from 1947 to 1997. The majority opinion has
disingenuously brushed aside the federal constitutional rights of the employers
(See footnote 2)
and
affirmed the circuit court's decision. For the reasons set out below, I dissent.
The Acts of 1947 set out a definite and express method for funding the
Second Injury Fund. Pursuant to that method,
[a] portion of all premiums that shall be paid into the
workers' compensation fund by subscribers not electing to
carry their own risk . . ., shall be set aside to create and
maintain a surplus fund to cover . . . the second injury hazard,
and all losses not otherwise specifically provided for in this
chapter.
W. Va. Code § 23-3-1(b) (emphasis added). The record in this case conclusively
established that, from 1947 to 1997, the State failed to set aside monies from the Workers'
Compensation Fund, as required by W. Va. Code § 23-3-1(b), and place such monies in the
Second Injury Fund. As a result of such failure, the Second Injury Fund has an estimated
six billion dollar deficit.
In 1997 the State, through its agents the Division of Workers' Compensation
and the Performance Council, devised a plan to pay off the six billion dollar Second Injury
Fund debt. Under that plan, called Resolution No. 11, self-insured employers were held
responsible for helping to pay the Second Injury Fund debt. The State dragged self-insured
employers into this deficit under the guise of paying increased “administrative” expenses.
The three self-insured employers in this appeal, Eastern Associated Coal, Pine
Ridge Coal Company and Weirton Steel Corporation, challenged the State's authority to
force them to help retire a debt that was created by the State's failure to comply with the
law in funding the Second Injury Fund beginning in 1947.
(See footnote 3)
The three employers argued at
the administrative level, in circuit court, and before this Court, that from 1947 to 1997
“administrative” expenses had never been defined to include payment of the Second Injury
Fund deficit. See Smith v. State Workmen's Comp. Comm'r, 159 W. Va. 108, 116, 219
S.E.2d 361, 366 (1975) (“Except for the small charges for administrative expenses,
self-insured employers make no payments into the Workmen's Compensation Fund,
because . . . such employers have elected to self-insure the payment of pecuniary
compensation and medical attention.” (citation omitted)).
The majority opinion has found that, although for fifty years “administrative”
expenses for self-insureds did not include payment of the Second Injury Fund deficit, the
federal constitution did not prohibit the State from redefining the term to force self-insureds
into helping pay a six billion dollar debt that they had no role in creating.
Under Article I, section 10, clause 1 of the United States Constitution, “[n]o
State shall . . . pass any . . . Law impairing the Obligation of Contracts[.]”
(See footnote 5)
This Court has
noted that “the [C]ontract [C]lause prohibits the passage of a statute or law which impairs
the obligation of an existing contract.” Collins v. City of Bridgeport, 206 W. Va. 467, 475,
525 S.E.2d 658, 666 (1999). “[T]he Contract Clause has been interpreted to apply to
legislative impairments of 'public' contracts, or contracts to which the state or its agent is
a party.” National Educ. Ass'n-Rhode Island by Scigulinsky v. Retirement Bd. of Rhode
Island Employees' Ret. Sys., 890 F. Supp. 1143, 1151 (D.R.I. 1995). It has been observed
that “the United States Supreme Court has been adamant in holding that 'impairments of
a State's own contracts w[ill] face more stringent examination under the Contract Clause
than would laws regulating contractual relationships between private parties.'” State ex rel.
West Virginia Reg'l Jail & Corr. Facility Auth. v. West Virginia Inv. Mgmt. Bd., 203 W. Va.
413, 424, 508 S.E.2d 130, 141 (1998) (Davis, C.J., dissenting) (quoting Allied Structural
Steel Co. v. Spannaus, 438 U.S. 234, 244 n.15, 98 S. Ct. 2716, 2722 n.15, 57 L. Ed. 2d 727
(1978)). See also Nieves v. Hess Oil Virgin Islands Corp., 819 F.2d 1237, 1249 (3d Cir.
1987) (“When the state is a contracting party, the legislative judgment is subject to stricter
scrutiny than when the legislation affects only private contracts.”).
A three-part test is used in analyzing an alleged Contract Clause violation.
First, a court must determine whether the challenged law operates “as a substantial
impairment of a contractual relationship.” Allied Structural Steel Co. v. Spannaus, 438 U.S.
234, 244, 98 S. Ct. 2716, 2722, 57 L. Ed. 2d 727 (1978) (footnote omitted). Second, if the
impairment is substantial, the court must determine whether there is “a significant and
legitimate public purpose behind the [challenged law.]” Energy Reserves
Group, Inc. v.
Kansas Power & Light Co., 459 U.S. 400, 411, 103 S. Ct. 697, 704, 74 L. Ed. 2d 569
(1983). Third, if a legitimate public purpose is demonstrated, the court must determine
whether the adjustment of “the rights and responsibilities of contracting parties [is based]
upon reasonable conditions and [is] of a character appropriate to the public purpose
justifying [the challenged law's] adoption.” United States Trust Co. v. New Jersey, 431 U.S.
1, 22, 97 S. Ct. 1505, 1518, 52 L. Ed. 2d 92 (1977).
(See footnote 6)
Utilizing this test, I will demonstrate
that the use of Resolution No. 11 to retroactively impose a six billion dollar Second Injury
Fund deficit on the self-insured employers in this case violates the Contract Clause.
1. Contractual Relationship. It has correctly been held that “[a] statutory
enactment is generally presumed not to create 'contractual or vested rights but merely
declares a policy to be pursued until the legislature shall ordain otherwise.'” Koster v. City
of Davenport, 183 F.3d 762, 766 (8th Cir. 1999) (quoting National R.R. Passenger Corp. v.
Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66, 105 S. Ct. 1441, 1451, 84 L. Ed. 2d
432 (1985)).
(See footnote 7)
However, “[i]f the language of the statute expressly indicates that the statute
is being enacted to form a contract, a determination that the state is party to a binding
obligation is clear.” National Educ. Ass'n-Rhode Island by Scigulinsky
v. Retirement Bd. of
Rhode Island Employees' Ret. Sys., 890 F. Supp. at 1152. The mere fact that a statute does
not use language expressly creating a contract does not mean that a contract cannot be
found in a statute. The United States Supreme Court has noted that, “[i]n general, a statute
is itself treated as a contract when the language and circumstances evince a legislative intent
to create private rights of a contractual nature enforceable against the State.” United States
Trust Co., 431 U.S. at 17 n.14, 97 S. Ct. at 1515 n.14. See also Dadisman v. Moore, 181
W. Va. 779, 789, 384 S.E.2d 816, 826 (1988) (“A statute is treated as a contract when the
language and circumstances evince a legislative intent to create private rights of a
contractual nature.” (citation omitted)). When “language and circumstances” are used to
find a contract from a statute, the contract is deemed implied. See Nieves, 819 F.2d at 1244
(“[T]he Contract Clause reaches . . . implied contracts. . . .”).
In the instant case, the applicable laws do not contain language that expressly
creates a contract between the State and the self-insured employers in this case, that is,
“[m]ost of the words typically associated with contract formation, such as 'contract,'
'consideration,' 'acceptance,' and 'reliance,' do not appear in the statute[s].” Perry v. Rhode
Island, 975 F. Supp. 418, 424 (D.R.I. 1997). However, as I will show, an implied contract
is clearly established when viewing the language and the circumstances attendant to those
laws.
(See footnote 8)
See In re Workers' Compensation Refund, 46 F.3d 813 (8th Cir. 1995) (finding
contract between state workers' compensation agency and insurers based upon statute and
other documents).
(See footnote 9)
The next step in the analysis requires the application of traditional contract principles to determine the implied contract between the State and the self-insured employers in this case. Part of the applicable contract framework was set out in National Education Association-Rhode Island by Scigulinsky v. Retirement Board of Rhode Island Employees' Retirement System, 890 F. Supp. at 1157, as follows:
In order for an agreement to be enforceable under contract law,
the parties must manifest their objective intent to be bound.
Such intent is manifested through one party's offer and the
other party's acceptance of the offer. When the offeror seeks
acceptance through an act of performance on the part of the
offeree, the offeror proposes a unilateral contract. A unilateral
contract consists of a promise made by one party in exchange
for the performance of another party, and the promisor
becomes bound in contract when the promisee performs the
bargained for act.
(Citations omitted). See also Cook v. Heck's Inc., 176 W. Va. 368, 373, 342 S.E.2d 453,
458 (1986) (“The concept of unilateral contract, where one party makes a promissory offer
and the other accepts by performing an act rather than by making a return promise, has also
been recognized: 'That an acceptance may be effected by silence accompanied by an act
of the offeree which constitutes a performance of that requested by the offeror is well
established.'” (quoting First Nat'l Bank v. Marietta Mfg. Co., 151 W. Va. 636, 641-42, 153
S.E.2d 172, 176 (1967)). Moreover, in the instant case, the contract between the parties
comes under the legal theory of an “implied in fact”contract, not an “implied in
law”contract. “An agreement implied in fact is 'founded upon a meeting of minds, which,
although not embodied in an express contract, is inferred, as a fact, from conduct of the
parties showing, in the light of the surrounding circumstances, their tacit understanding.'”
(See footnote 10)
Hercules, Inc. v. United States, 516 U.S. 417, 424, 116 S. Ct. 981, 986, 134 L. Ed. 2d 47
(1996) (quoting Baltimore & Ohio R.R. Co. v. United States, 261 U.S. 592, 597, 43 S. Ct.
425, 426-427, 67 L. Ed. 816 (1923)). See also Johnson v. National Exch. Bank of Wheeling,
124 W. Va. 157, 19 S.E.2d 441 (1942) (noting that a contract implied in fact “presupposes
an obligation 'arising from mutual agreement and intent to promise but where the
agreement and promise have not been expressed in words.' It requires a meeting of the
minds, just as much as an express contract.” (citation omitted)). “In short, an
implied-in-fact contract arises when an express offer and acceptance are missing but the
parties' conduct indicates mutual assent.” City of Cincinnati v. United States, 153 F.3d 1375,
1377 (Fed. Cir. 1998). Like an express contract, an implied-in-fact contract requires “an
offer and an acceptance supported by consideration.” Art's Flower Shop, Inc. v. Chesapeake
& Potomac Tel. Co. of West Virginia, Inc., 186 W. Va. 613, 616-617, 413 S.E.2d 670, 673-
674 (1991). See also City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir.1990)
(indicating an implied contract requires showing “(1) mutuality of intent to contract; (2)
consideration; and, (3) lack of ambiguity in offer and acceptance.”). I will now outline
separately the offer, acceptance and consideration that formed the implied contract in this
case.
(a) Offer. The contractual offer (See footnote 11) made by the State in this case is found in several statutes. (See footnote 12) First, W. Va. Code § 23-2-1(a) (1995) (Repl. Vol. 2002) obligates all employers to subscribe to and pay premium taxes into the general Workers' Compensation Fund. (See footnote 13) The general Workers' Compensation Fund was created under W. Va. Code § 23-3-1(a) (1995) (Repl. Vol. 2002). (See footnote 14) The methodology for paying premium taxes into the general Workers' Compensation Fund, for an employer who must subscribe to the fund, is a percentage of the employer's gross wages payroll, as set out under W. Va. Code § 23-2- 5(a) (1999) (Repl. Vol. 2002). (See footnote 15) Second, in addition to creating a general Workers' Compensation Fund for subscribing employers, the State created a Second Injury Fund for workers sustaining multiple injuries with different employers. Under W. Va. Code § 23-3- 1(b) the funding method chosen for the Second Injury Fund required “[a] portion of all premiums that [must] be paid into the workers' compensation fund by subscribers not electing to carry their own risk under section nine, article two of this chapter, [must] be set aside to create and maintain a surplus fund to cover . . . the second injury hazard[.]” (See footnote 16)
(Emphasis added.). Third, through W. Va. Code § 23-2-9(a) (1995) (Repl. Vol. 2002), the
State created a detailed procedure whereby employers could elect not to subscribe to the
Workers' Compensation Fund and the Second Injury Fund, provided the employers met
certain stringent financial conditions.
(See footnote 17)
This statute allowed qualified employers to
voluntarily self-insure all of their workers' compensation obligations, including second
injury claims. The State also provided, under W. Va. Code § 23-2-9(b), the manner in
which totally self-insured employers would pay premium taxes into the general Workers'
Compensation Fund.
(See footnote 18)
Fourth, the State provided a mechanism for self-insured employers
to take part in the Second Injury Fund. Under W. Va. Code § 23-2-9(e)(3)(A) self-insured
employers subscribing to the Second Injury Fund must pay a specific premium tax.
(See footnote 19)
Fifth,
under W. Va. Code § 23-2-9(e)(3)(B) self-insured employers who subscribe to the Second
Injury Fund, are only liable to an employee for a second injury, and all other compensation
for permanent and total disability is paid from the Second Injury Fund.
(See footnote 20)
The statutory provisions cited above clearly show that the State made an
“offer” to the self-insured employers in this case that permitted the employers to voluntarily
opt out of mandatory participation in the State's general Workers' Compensation Fund and
its Second Injury Fund, upon meeting certain criteria. The offer also included an option to
subscribe to the Second Injury Fund. See National Educ. Ass'n, 890 F. Supp. at 1157 (“By
enacting a statute in 1987 which allowed plaintiffs to voluntarily join and thereafter
contribute to the Retirement System, the General Assembly extended . . . a statutory
offer.”).
(b) Acceptance. The record in this case is not in dispute in showing that each
of the employers in this case accepted the statutory offer to self-insure. “The offer was
accepted on the terms that [the State] proposed. Thus, a meeting of the minds was
accomplished.” National Educ. Ass'n, 890 F. Supp. at 1158.
Pine Ridge and Weirton Steel accepted the offer to self-insure so as not to
have to subscribe to the general Workers' Compensation Fund, as well the Second Injury
Fund. Eastern Associated accepted the offer to self-insure and not have to subscribe to the
general Workers' Compensation Fund, as well as accepted the offer to subscribe to the
Second Injury Fund.
(c) Consideration. For the purposes of contract law, “'consideration consists
either in some right, interest or benefit accruing to one party or some forbearance, detriment
or responsibility given, suffered or undertaken by the other.'” National Educ. Ass'n, 890
F. Supp. at 1159 (quoting Hayes v. Plantations Steel Co., 438 A.2d 1091, 1094 (R.I.1982)
(internal citations omitted)). In the instant case, one form of consideration that was given,
was that all three employers voluntarily undertook the responsibility of directly paying
general workers' compensation benefits to their workers.
(See footnote 21)
This burden relieved the State
of all responsibilities involved with providing healthcare and other benefits to the self-
insured employers' employees. Additionally, Pine Ridge and Weirton Steel also elected to
provide direct benefits for their second injury employees. This additional undertaking by
Pine Ridge and Weirton Steel provided direct financial savings to the State, because the
State had the exclusive financial responsibility for providing permanent and total disability
benefits to injured employees who came under the Second Injury Fund.
In sum, “[i]t is because [the employers] voluntarily opted [out of] the
System . . . and made decisions about their [businesses] in response [thereto] that the
[employers] and the [State] are parties to an implied contract.” National Educ. Ass'n, 890
F. Supp. at 1161.
2. Impairment. The second step in determining whether there has been a substantial impairment of a contractual relationship, requires “identifying the precise contractual right that has been impaired[.]” Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 504, 107 S. Ct. 1232, 1251, 94 L. Ed. 2d 472 (1987). “In other words, before [a] [c]ourt can determine whether the impairment is substantial, it must first identify what contractual rights, if any, have been impaired.” Equipment Mfrs. Inst. v. Janklow, 300 F.3d 842, 851 (8th Cir. 2002).
(a) Pine Ridge and Weirton Steel. Under the contract the State had with Pine
Ridge and Weirton Steel, those two employers were self-insured and exempt from having
to subscribe to the State's general Workers' Compensation Fund and its Second Injury
Fund. As a result of this exemption, the State was obligated to only assess a special self-
insured premium tax against them. Under W. Va. Code § 23-2-9(b), that premium tax
consisted of payments for: (1) administrative expenses; (2) costs associated with employers
who were in default; (3) expenses of the disabled workers' relief fund; and (4) an advance
deposit for the foregoing three costs. Through the retroactive application of Resolution No.
11, the State has sought to hold Pine Ridge and Weirton Steel liable for helping to pay the
Second Injury Fund deficit, by expanding the definition of administrative costs to include
annual payments that are specifically earmarked to reduce the six billion dollar Second
Injury Fund deficit.
The State's retroactive application of Resolution No. 11 impairs the premium
tax
provision of the contract the State had with Pine Ridge and Weirton Steel. Resolution
No. 11 has caused the premium tax for Pine Ridge and Weirton Steel to include payment
of a Second Injury Fund debt that accrued during the period 1947 to 1997. During that
entire period Pine Ridge and Weirton Steel were self-insured and exempt from any
responsibility for or to the States's Second Injury Fund.
Resolution No. 11, in effect, is making Pine Ridge and Weirton Steel,
retroactively subscribe to the general Workers' Compensation Fund and Second Injury
Fund, for a period of time when they were self-insured and contractually exempt from such
subscription. Put another way, under Resolution No. 11 Pine Ridge and Weirton Steel are
being forced to retroactively pay premiums for the benefit of second injury employees of
nonself-insured employers, while simultaneously and exclusively paying all benefits for
their own employees. Resolution No. 11 does not relieve Pine Ridge and Weirton Steel
from their obligations to their own employees, as self-insurers, it imposes an additional
obligation on Pine Ridge and Weirton Steel to constructively be the employers for
employees of nonself-insured employers. Prior to the implementation of Resolution No. 11,
under the terms of the contract Pine Ridge and Weirton Steel had with the State, they were
absolutely exempt from the burden now being imposed by Resolution No. 11.
(b) Eastern Associated. Under the contract the State had with Eastern
Associated, it was self-insured and exempt from having to pay into the State's general
Workers' Compensation Fund. As a self-insured employer, Eastern Associated was
assessed a special self-insured premium tax under
W. Va. Code § 23-2-9(b). That premium tax consisted of payments for:
(1) administrative expenses; (2) costs associated with
employers who were in default; (3) expenses of the disabled workers' relief fund; and (4) an
advance deposit for the foregoing three costs.
Eastern Associated's contract also included a subscription to the State's
Second Injury Fund. As a result of its subscription to the Second Injury Fund, Eastern
Associated was obligated to pay a specific premium tax for such coverage pursuant to
W. Va. Code § 23-2-9(e)(3)(A).
(See footnote 22)
Additionally, Eastern Associated's direct liability to a
previously injured employee, who sustained a second injury that resulted in permanent total
disability, was contractually limited to compensation for the second injury only, pursuant
to W. Va. Code § 23-2-9(e)(3)(B).
(See footnote 23)
Under that statute the State was exclusively
responsible for all additional compensation. Further, the statute expressly stated that “[s]uch
additional compensation and expenses shall not be charged against such employer.” W. Va.
Code § 23-2-9(e)(3)(B). See also Syl., Mullens v. State Workmen's Comp. Comm'r, 159
W. Va. 502, 223 S.E.2d 604 (1976) (“Where an employee of a self-insured employer who
pays into the surplus fund sustains a second injury resulting in total permanent disability,
the employer is liable for medical expenses occasioned by the second injury up to $3,000
under the second injury statute, and, thereafter, the surplus fund is chargeable for such
medical payments.” (citation omitted)).
Resolution No. 11 seeks to hold Eastern Associated responsible for helping
to retire a deficit in the Second Injury Fund that accrued during the period 1947 to 1997.
During that entire period Eastern Associated's self-insured administrative costs did not
include additional monies earmarked for retiring the Second Injury Fund debt. One reason
for this is, as a self-insured that subscribed to the Second Injury Fund, Eastern Associated
was being assessed a specific premium tax to cover its participation in the Second Injury
Fund. Nonself-insured employers were never assessed a specific premium tax in order to
receive coverage under the Second Injury Fund. Resolution No. 11, in effect, is making
Eastern Associated retroactively pay premiums for the benefit of second injury employees
of nonself-insured employers, while simultaneously paying all benefits for its own
employees, including a specific premium tax for its participation in the Second Injury Fund
as a self-insurer.
To determine whether an impairment is substantial, courts “consider the
extent to which the [plaintiff's] reasonable expectations have been disrupted.” In re
Workers' Comp. Refund, 46 F.3d 813, 819 (8th Cir. 1995) (citation omitted). This does not
mean that “[t]otal destruction of contractual expectations is . . . necessary for a finding of
substantial impairment.” Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459
U.S. 400, 411, 103 S. Ct. 697, 704, 74 L. Ed. 2d 569 (1983) (citation omitted). The
jurisprudence of the United States Supreme Court requires a consideration of “whether the
industry the complaining party has entered has been regulated in the past.” Id. at 411, 103
S. Ct. at 704 (citations omitted).
(See footnote 24)
It has been further explained that, “[h]eavy regulation
of an industry may reduce reasonable expectations. . . . However, regulation does not
automatically foreclose the possibility of contract impairment. Courts have found
substantial impairment of contracts in heavily regulated areas of commerce.” In re Workers'
Comp. Refund, 46 F.3d at 820 (citing Allied Structural Steel Co. v. Spannaus, 438 U.S. 234,
250, 98 S. Ct. 2716, 2725, 57 L. Ed. 2d 727 (1978) (employee pensions); Holiday Inns
Franchising, Inc. v. Branstad, 29 F.3d 383, 385 (8th Cir. 1994) (franchise agreements);
Minnesota Ass'n of Health Care Facilities, Inc. v. Minnesota Dep't of Pub. Welfare, 742
F.2d 442, 451 (8th Cir.1984) (nursing home rates)). Indeed,
There is no question that the State's workers' compensation system is heavily
regulated. The workers' compensation system was created by the State legislature and is
regulated exclusively by the State. See Roberts v. Consolidation Coal Co., 208 W. Va. 218,
234, 539 S.E.2d 478, 494 (2000) (“'It has been held repeatedly by this Court that the right
to workmen's compensation benefits is based wholly on statutes, in no sense based on the
common law; that such statutes are sui generis and controlling; that the rights, remedies
and procedures thereby provided are exclusive[.]'” (citation omitted)); Boyd v. Merritt, 177
W. Va. 472, 474, 354 S.E.2d 106, 108 (1986) (“The right to workers' compensation
benefits is wholly a creature of statute[.]”); Lester v. State Workmen's Comp. Comm'r, 161
W. Va. 299, 315, 242 S.E.2d 443, 452 (1978) (“[T]he legislature has the power to modify
this state's industrial insurance program as it sees fit so long as no constitutional provision
is infringed.”); Bailes v. State Workmen's Comp. Comm'r, 152 W. Va. 210, 212, 161 S.E.2d
261, 263 (1968) (“The right to workmen's compensation is wholly statutory and is not in
any way based on the common law. The statutes are controlling and the rights, remedies
and procedure provided by them are exclusive.”); Syl. pt. 2, in part, Dunlap v. State Comp.
Dir., 149 W. Va. 266, 140 S.E.2d 448 (1965) (“The right to workmen's compensation
benefits is wholly statutory.”). The State's regulatory authority would include the regulation
of premiums charged to the self-insured employers in this case. However, prior to the
adoption of Resolution No. 11, the State had never sought to regulate payment of the deficit
that accrued in the Second Injury Fund from 1947 to 1997.
(See footnote 25)
See Toledo Area AFL-CIO
Council v. Pizza, 154 F.3d 307, 323 (6th Cir. 1989) (“If that enterprise has previously been
regulated with respect to the particular aspect that is the subject of the challenged
legislation, then it may be assumed that further legislation of that specific area does not
work as substantial an impairment as a law affecting a hitherto unregulated aspect of the
industry.”). As a result of fifty years of inaction by the State, the self-insured employers did
not have “a fair warning of an impending intervention into their contracts with [the State].”
In re Workers' Comp. Refund, 46 F.3d at 820. Consequently, the mere fact that the State had
previously regulated the premiums paid by the self-insured employers, does not
automatically render insignificant the State's decision to force the self-insured employers
to share the financial burden of retiring a six billion dollar Second Injury Fund debt. See
In re Workers' Comp. Refund, 46 F.3d at 820 (finding substantial impairment in the context
of the heavily-regulated workers' compensation insurance industry).
The self-insured employers in this case had a reasonable expectation that,
because of their self-insured status, they would not be assessed premium charges to reduce
a six billion dollar deficit to which they did not contribute, and were contractually exempt
from having to pay. See Toledo Area AFL-CIO Council, 154 F.3d at 324 (“[S]howing the
affected term induced the parties to enter into the contract is sufficient to establish a
substantial impairment for purposes of the Contracts Clause.”); Baltimore Teachers Union
v. Mayor & City Council, 6 F.3d 1012, 1018 (4th Cir.1993) (“[W]here the contract right or
obligation impaired was one that induced the parties to enter into the contract . . . the
impairment must be considered 'substantial' for purposes of the Contracts Clause.”).
Indeed, for fifty years the Second Injury Fund deficit was rightly thought to be the exclusive
responsibility of the State. See Cline v. State Workmen's Comp. Comm'r, 156 W. Va. 647,
652, 196 S.E.2d 296, 299 (1973) (“[W]e observe that in cases resulting in a life award from
the 'second injury' reserve . . ., the real adversary party is not the employer who is
chargeable only for permanent partial ratings. It is the Workmen's Compensation Fund
which must bear the burden of payment of the total and permanent disability award. Under
the statutory scheme . . . it would seem appropriate for the Fund to be represented by its
counsel or by the Office of the Attorney General.” (citations omitted)).
The State's imposition of premium taxes upon the self-insured employers, in
an amount calculated to contribute to a reduction of the six billion dollar deficit, has caused
a substantial increase in the amount of premium taxes the self-insured employers are
required to pay. For fiscal year 1998, Weirton Steel was charged $206,000 as its first
annual payment for reducing the Second Injury Fund deficit. For the same year Pine Ridge
was charged $271,228 as its first annual payment for reducing the Second Injury Fund
deficit. Finally, for fiscal year 1998 Eastern Associated was charged $7,265,945 as its first
annual payment for reducing the Second Injury Fund deficit.
The annual Second Injury Fund debt reduction premiums being charged to
the self-insured employers substantially impairs the contract they have with the State. The
additional annual premium charges must be paid even though the employers, as self-
insureds, are still exclusively financially obligated to their respective employees for the
payment of workers' compensation benefits. “[T]his substantial impairment was not
foreseeable[.]” Equipment Mfrs. Inst. v. Janklow, 300 F.3d 842, 859 (8th Cir. 2002).
(Footnote omitted). See also Nieves, 819 F.2d at 1243 (“If the state is a party to the
contract, such deference is inappropriate, and the court may inquire whether a less drastic
alteration of contract rights could achieve the same purpose[.]”).
The public purpose behind Resolution No. 11 is to pay off the Second Injury
Fund's six billion dollar deficit and salvage the workers' compensation system without
having to impose a special premium tax on the employees of nonself-insured employers or
imposition of some other special tax on the general public. Although this purpose may be
legitimate, its legitimacy does not rise to the level of satisfying the Contract Clause.
“Something more than the showing made to survive rational basis scrutiny is required to
justify such an impairment. The hurdle is even higher given the [S]tate's obvious
self-interest[.]” Toledo Area AFL-CIO Council v. Pizza, 154 F.3d 307, 326 (6th Cir. 1998).
The United States Supreme Court has observed that a State's “taxing power
may have to be exercised if debts are to be repaid.” United States Trust, 431 U.S. at 24, 97
S. Ct. at 1519. That is, “a State cannot refuse to meet its legitimate financial obligations
simply because it would prefer [not to raise taxes] to promote the public good[.]” Id. at 29,
97 S. Ct. at 1521. “If a State could reduce its financial obligations whenever it wanted to
[by breaching its own contract] for what it regarded as an important public purpose, the
Contract Clause would provide no protection at all.” Id. at 26, 97 S. Ct. at 1519 (footnote
omitted).
(See footnote 27)
Insofar as the State sought to maintain the viability of the workers'
compensation program by invalidating its contract with the self-insured employers, and
imposing draconian costs upon them, the Contract Clause cannot support its purpose as
being legitimate.
Under the terms of the State's contract with Eastern Associated, Pine Ridge
and Weirton Steel, the State had the exclusive responsibility for funding the Second Injury
Fund. The State, through W. Va. Code § 23-3-1(a), promised to fund the Second Injury
Fund through monies it received from nonself-insured employers who subscribed to the
State's general Workers' Compensation Fund.
(See footnote 28)
This Court has previously acknowledged
that self-insured employers, like Eastern Associated, Pine Ridge and Weirton Steel,
“elect[ed] to make direct payments of compensation in lieu of subscribing to the Workers'
Compensation Fund.” Deller v. Naymick, 176 W. Va. 108, 110 n.5, 342 S.E.2d 73, 75 n.5
(1985). Consequently, “[e]xcept for the small charges for administrative expenses,
self-insured employers make no payments into the Workmen's Compensation Fund[.]”
Smith v. State Workmen's Comp. Comm'r, 159 W. Va. 108, 116, 219 S.E.2d 361, 366 (1975)
(emphasis added).
Through Resolution No. 11, the State has, in effect, repudiated its promised
method of funding the Second Injury Fund. Under W. Va. Code § 23-3-1(b) “[a] portion
of all premiums that [must] be paid into the workers' compensation fund by subscribers not
electing to carry their own risk” was supposed to be set aside for the Second Injury Fund.
Id. (emphasis added). For fifty years the State failed to carry out its exclusive responsibility
to allocate money for the Second Injury Fund as required by W. Va. Code § 23-3-1(b).
West Virginia Code § 23-3-1(b) constituted a promise by the State that self-
insured employers did not have any responsibility to the Second Injury Fund_the State had
exclusive responsibility for making payments into and out of the Second Injury Fund. The
United States Supreme Court has held that “'[a] promise to pay, with a reserved right to
deny or change the effect of the promise, is an absurdity.'” United States Trust, 431 U.S.
at 25 n.23, 97 S. Ct. at 1519 n.23 (quoting Murray v. Charleston, 96 U.S. 432, 445, 24
L. Ed. 760, 763 (1878)). Resolution No. 11 is an absurdity that is not based upon
reasonable conditions, nor is it of a character appropriate to the public purpose justifying
its adoption. The resolution totally relieves the State of its exclusive responsibility for
funding the Second Injury Fund as required by W. Va. Code § 23-3-1(b), and forces self-
insured employers to undertake that responsibility while maintaining their financial
responsibilities to their own employees. Clearly there is nothing reasonable about these
conditions in light of the contract the State had with Eastern Associated, Pine Ridge and
Weirton Steel, and the viable alternative of taxing wages of nonself-insured employees.
Even if I “'[a]ccept[] the principle that the [S]tate's duty to maintain the fiscal
integrity of the [workers' compensation system] through actuarial soundness is a valid basis
for some changes [to pay the deficit], nevertheless, the [S]tate's unilateral [breach of its
contract with the self-insured employers] cannot pass constitutional muster and must fall.'”
Association of Pennsylvania State Coll. & Univ. Faculties v. State Syst. of Higher Educ., 505
Pa. 369, 377, 479 A.2d 962, 966 (1984) (citation omitted). The State cannot impose “a
drastic impairment when an evident and more moderate course would serve its purposes
equally well.” United States Trust, 431 U.S. at 31, 97 S. Ct. at 1522. “While the need to
keep the workmen's compensation fund on a sound financial basis may justify prospective
legislation designed for that purpose, it cannot justify this type of retrospective legislation.”
Nieves, 819 F.2d at 1252.
“[w]here a signatory [was] no longer involved in any business activity, premiums [were]
levied against 'related person[s],' including successors in interest and businesses or
corporations under common control.” Id. (citations omitted). Eastern Enterprises had
transferred its coal-related operations to a subsidiary by the end of 1965. Id. at 516, 118
S. Ct. at 2143. Though Eastern Enterprises retained a stock interest in the subsidiary for
some time, it ultimately sold its interest in 1987. Id. Nevertheless, pursuant to the Coal
Act, Eastern Enterprises was assigned the obligation for premiums “respecting over 1,000
retired miners who had worked for [it] before 1966.” Id. at 517, 118 S. Ct. at 2143. Eastern
Enterprises's obligation was based upon its “status as the pre-1978 signatory operator for
whom [the subject retiree] miners had worked for the longest period of time. . . . Eastern's
premium for a 12-month period exceeded $5 million.” Id. (citations omitted). A plurality
of the Eastern Court decided that the Coal Act violated the Takings Clause. Justice
Kennedy, however, while agreeing that the Coal Act was unconstitutional, opined that Coal
Act had violated the Due Process Clause of the Constitution of the United States.
Justice Kennedy explained that,
Eastern, 524 U.S. at 549, 118 S. Ct. at 2159. Indeed, “for centuries our law has harbored
a singular distrust of retroactive statutes.” Id. at 547, 118 S. Ct. at 2158 (citing plurality
opinion at 532-33, 118 S. Ct. at 2151).
The instant case is similar to Eastern in that the State, by virtue of Resolution
No. 11, is imposing a severe retroactive regulation that fashions a remedy “bear[ing] no
legitimate relation to the interest which the Government asserts in support” of that
legislation.” Id. Resolution No. 11 charges self-insured employers a substantial amount
to reduce a six billion dollar debt that was created, not by these self insured employers, but
by the State itself. For a fifty-year period the State has failed to maintain a Second Injury
Fund, even though it had the exclusive responsibility to do so. See W. Va. Code § 23-3-1(a).
(See footnote 31)
Beginning in 1998, the State, under the authority of Resolution No. 11, has charged
self-insured employers millions of dollars to reduce this debt even though the employers
are exempt from any responsibility to fund the Second Injury Fund. See W. Va. Code § 23-
3-1(b).
(See footnote 32)
A0s I explained earlier in this dissenting opinion, Pine Ridge and Weirton Steel
have never subscribed to the Second Injury Fund. They have fulfilled their obligation to
their second injury employees by direct payment of claims. Nevertheless, the State, via
Resolution No. 11, is retroactively subscribing Pine Ridge and Weirton Steel to the Second
Injury Fund for a period of time when they were self-insured. Thus, they are being forced
to retroactively pay premiums for the benefit of second injury employees of nonself-insured
employers. While Eastern Associated did subscribe to the Second Injury Fund, Eastern
Associated was assessed a special premium tax to cover its participation in that fund. See
W. Va. Code § 23-2-9(e)(3)(A).
(See footnote 33)
Thus, Resolution No. 11 is causing Eastern Associated
to retroactively pay additional premiums for the benefit of second injury employees of
nonself-insured employers. The amount of the retroactive premiums is substantial. For
Fiscal Year 1998, self-insured employers as a whole were assessed more than forty-five
million to reduce the deficit. The premiums imposed upon Weirton Steel were $206,000
for Fiscal Year 1998. Pine Ridge was assessed $271,228 for the year, and Eastern
Associated was assessed $7,265,945. Finally, I contend that Resolution No. 11 bears no
legitimate relation to the interest which the Government has asserted. Self-insured
employers did not create the six billion dollar deficit the State is seeking to reduce. That
deficit was created by the State's failure to fund the Second Injury Fund as it was
legislatively mandated to do. To now charge self-insured employers, who have fulfilled
their obligation to their second injury employees, to relieve a debt created by the unlawful
actions of the State is simply wrong.
An economic regulation may be found to violate the Due Process clause only
under the most egregious circumstances: In the Eastern case discussed in the preceding
section, one of the grounds asserted by Eastern Enterprises in challenging
the premiums it was charged for retiree health care benefits was that the premiums
violated the Takings Clause. The Court acknowledged that, while not a taking
in the classic sense, “economic regulation . . . may
nonetheless effect a taking.” 524 U.S. at 523, 118 S. Ct. at 2146.
The High Court went on to explain that:
Following the lead of the Eastern plurality, the United States Court of Appeals
for the Fifth Circuit has applied the three-part test in the context of a Workers'
Compensation case involving the funding formula for calculating premiums to be paid into
the Louisiana Workers' Compensation Second Injury Fund by insurers. United States Fid.
& Guar. v. McKeithen, 226 F.3d 412. In McKeithen, numerous insurers challenged Act 188
(hereinafter “the Act”), which contained a funding formula that calculated premiums based
upon “the insurer's volume of business written in earlier years,” and was made retroactive
to insurance policies written before passage of the legislation imposing the funding formula.
Id. at 415. The Act was also “made expressly applicable to workers' compensation insurers
who, prior to the Act's passage, had withdrawn from the Louisiana market or had
substantially reduced their underwriting in the state.” Id. Applying the three-part test
announced in Eastern, the Fifth Circuit concluded that the Takings Clause had been
violated. Following the Eastern and McKeithen cases, I will analyze the premium tax
charged to the self-insured employers in the case sub judice under the three factor test set
out in Eastern.
The McKeithen Court, in discussing this factor, observed that consideration
should be given “not only [to] the financial burden [imposed by the Act], but also the
proportionality between that burden and the insurers' experience with the [Second Injury
Fund].” 226 F.3d at 416. In finding that the Act imposed a considerable and novel
financial burden on insurers, who had paid a net amount of zero for claims made on the
Second Injury Fund prior to enactment of the new funding scheme, the Court observed that
the Act was estimated to cost the various insurers five million dollars in its first year of
enactment and forty-five million dollars in the future. Id. at 416-17. Moreover, the insurers
who had discontinued or substantially reduced their volume of business in Louisiana had
no practical way of recouping the premium. Id. at 417. Finally, the Court commented:
The newly-created liability reflects no proportionality to
the plaintiffs' experience with the SIF [Second Injury Fund].
For over twenty years before Act 188, plaintiffs were an
intermediary for the SIF. They collected assessments from
employers and received SIF reimbursement for payment of
second injury benefits. They received no net benefits and
incurred no net costs. Defendants do not argue that the policy
and purpose of the SIF have changed since its inception in
1974. But under Act 188, plaintiffs must make significant net
contributions to the fund. Act 188 thus imposes costs on
parties that never profited from the SIF.
In the McKeithen case, the Fifth Circuit similarly observed that “[r]etroactivity
is generally disfavored in the law . . . . Retroactive legislation, as opposed to the
prospective kind, can present more severe problems of unfairness because it can upset
legitimate expectations and settled transactions.” 226 F.3d at 418 (citations omitted). The
retroactive application of the Act at issue in McKeithen “reached back at least twenty years
to upset the plaintiffs' reliance on the cost-neutrality of the [prior] funding scheme.” Id.
The defendants in McKeithen argued that the companies' economic expectations were
“unreasonable because the insurance industry is heavily regulated and because the plaintiffs
knew of the [Second Injury Fund's] need for annual funding and knew that benefits-based
assessments are prescribed in many other states.” Id. at 418. The Court rejected all of these
arguments, ultimately concluding that there was “no pattern of conduct on the state's part
that could have given the plaintiffs sufficient notice [of the new funding scheme].” Id. at
419.
Here Resolution No. 11 reaches back fifty years, the duration of the time the
State created a six billion dollar deficit by failing to fulfill its legislatively mandated duty
to fund the Second Injury Fund. See W. Va. Code § 23-3-1(a). As self-insured employers
not subscribing to the Second Injury Fund, Pine Ridge and Weirton Steel were legislatively
exempt from any responsibility to fund the Second Injury Fund. See W. Va. Code § 23-3-
1(b). While Eastern Associated did subscribe to the Second Injury Fund, it was assessed
a special premium tax to cover that participation. See W. Va. Code § 23-2-9(e)(3)(B).
Because these employers fulfilled their obligation to their own employees, either by directly
paying second injury claims, or by paying the properly assessed special premium tax for
participation in the Workers' Compensation Second Injury Fund, Resolution No. 11 is
causing them to retroactively pay additional premiums for the benefit of second injury
employees of nonself-insured employers. Moreover, these self-insured employers had the
reasonable expectation that the state would fulfill its legal duty to fund the Second Injury
Fund. They had no way of anticipating that the State would charge them hundreds of
thousands, or even millions, of dollars per year to reduce a six billion dollar debt created
by the State's unlawful failure to fund the Second Injury Fund. This is true in spite of the
fact that the State's workers' compensation system is heavily regulated. Prior to the
adoption of Resolution No. 11, the State had never sought to regulate payment of the deficit
that accrued in the Second Injury Fund from 1947 to 1997. Due to this fifty years of
inaction by the State, the self-insured employers could not have had “sufficient notice” of
a new funding scheme.” See McKeithen, 226 F.3d at 419.
Through Resolution No. 11, the State has sought to hold Eastern Associated
liable for helping to pay the Second Injury Fund deficit, by expanding the definition of
administrative costs
3. Impairment is Substantial. Having shown that a contract existed between
the State and Eastern Associated, Pine Ridge and Weirton Steel, and that Resolution No.
11 impaired that contract, I will now demonstrate that the impairment was substantial.
[t]he substantiality of an impairment is not discounted simply
because the affected contract provision is in some way
connected to a previously regulated area. Rather, prior
regulation of a field mitigates the substantiality of an
impairment only to the extent that it opens a contracting party's
eyes to the prospect of changes in the existing regulations or to
new regulations that may affect the . . . contract.
Toledo Area AFL-CIO Council v. Pizza, 154 F.3d 307, 324 (6th Cir 1998).
The next point of analysis in a Contract Clause claim requires a consideration
of whether the State has a significant and legitimate public purpose behind adoption of
Resolution No. 11.
(See footnote 26)
The United States Supreme Court discussed the issue in United States
Trust Co., 431 U.S. at 25-26, 97 S. Ct. at 1519 as follows:
The Contract Clause is not an absolute bar to subsequent
modification of a State's own financial obligations. As with
laws impairing the obligations of private contracts, an
impairment may be constitutional if it is reasonable and
necessary to serve an important public purpose. In applying
this standard, however, complete deference to a legislative
assessment of reasonableness and necessity is not appropriate
because the State's self-interest is at stake.
It is clear that under the decision in United States Trust “courts are not to grant
carte blanche deference to a legislative assessment of what is reasonable legislation.
Reasonableness must filter through a more stringent analysis.” State ex rel. West Virginia
Reg'l Jail & Corr. Facility Auth. v. West Virginia Inv. Mgmt. Bd., 203 W. Va. 413, 426, 508
S.E.2d 130, 143 (1998) (Davis, C.J., dissenting). See also Lipscomb v. Columbus Mun.
Separate Sch. Dist., 269 F.3d 494, 511 (5th Cir. 2001) (“The State is a party to the contracts,
so we cannot defer in the manner of due process to the State's judgment of the
reasonableness of its threatened action.” (footnote omitted)); Parker v. Wakelin, 123 F.3d
1, 5 (1st Cir. 1997) (“Where the contract allegedly impaired is one created, or entered into,
by the state itself, less deference to a legislative determination of reasonableness and
necessity is required[.]”); McGrath v. Rhode Island Ret. Bd., 88 F.3d 12, 16 (1st Cir. 1996)
(“[W]hen a state is itself a party to a contract, courts must scrutinize the state's asserted
purpose with an extra measure of vigilance.”). In other words, “[w]hen a State itself enters
into a contract, it cannot simply walk away from its financial obligations.” Energy Reserves
Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 412 n.14, 103 S. Ct. 697, 705 n.14,
74 L. Ed. 2d 569 (1983). Consequently, “the Contract Clause limits otherwise legitimate
exercises of state legislative authority, and the existence of an important public interest is
not always sufficient to overcome that limitation.” United States Trust, 431 U.S. at 21, 97
S. Ct. at 1517.
Assuming, for the sake of argument, that a constitutionally legitimate public
purpose supported Resolution No. 11, the resolution would still violate the Contract Clause
because its adjustment of the rights of the contracting parties is “not based upon reasonable
conditions [and] is not of a character appropriate to the public purpose justifying [its]
adoption.” In re Workers' Comp. Refund, 46 F.3d at 817. “Framed another way, this inquiry
entails an 'overall determination of reasonableness.'” Nieves, 819 F.2d at 1249 (quoting
United States Trust, 431 U.S. at 22 n.19, 97 S. Ct. at 1518 n.19).
By imposing a premium upon self-insured employers to recover funds to
reduce a long standing debt of the Workers' Compensation Division, the State has enacted
severe retroactive legislation and has thereby violated the Due Process Clause of the Fifth
Amendment to the United States Constitution. In reaching this conclusion, I am persuaded
by Justice Kennedy's separate opinion in Eastern Enterprises v. Apfel, 524 U.S. 498, 539,
118 S. Ct. 2131, 2154, 141 L. Ed. 2d 451 (1998) (Kennedy, J., concurring in the judgment
and dissenting in part).
In Eastern, the United States Supreme Court was presented with a challenge
similar to the one presented in this case. Eastern Enterprises challenged the Coal Industry
Retiree Health Benefit Act of 1992 (hereinafter “the Coal Act”). The Coal Act had
“establish[ed] a mechanism for funding health care benefits for retirees from the coal
industry and their dependents.” Eastern 524 U.S. 498, 504, 118 S. Ct. 2131, 2137. To
accomplish its goals, the Coal Act obtained funding by imposing “annual premiums
assessed against . . . coal operators that had signed any [National Bituminus Wage
Agreement]
(See footnote 29)
or any other agreement requiring contributions to the 1950 or 1974 Benefit
Plans.”
(See footnote 30)
524 U.S. at 514, 118 S. Ct. at 2142. Under the Coal Act, premiums could be
assessed against these signatory companies so long as they derived revenue from “'any
business activity, whether or not in the coal industry.'” Id. (citations omitted). Moreover,
due process protection for property must be understood to
incorporate our settled tradition against retroactive laws of
great severity. Groups targeted by retroactive laws, were they
to be denied all protection, would have a justified fear that a
government once formed to protect expectations now can
destroy them. Both stability of investment and confidence in
the constitutional system, then, are secured by due process
restrictions against severe retroactive legislation.
Conducting a due process analysis of a severe retroactive law “requires an
inquiry into whether in enacting the retroactive law the legislature acted in an arbitrary and
irrational way.” Id. at 549, 118 S. Ct. at 2159. In other words, we must ask whether “the
remedy created by the [regulation] bears [a] legitimate relation to the interest which the
Government asserts in support of the [law]. . . . In our tradition, the degree of retroactive
effect is a significant determinant in the constitutionality of a statute.” Id. (Citations
omitted).
Finding a due process violation in this case is consistent
with the principle that “under the deferential standard of review
applied in substantive due process challenges to economic
legislation there is no need for mathematical precision in the fit
between justification and means.” . . . Statutes may be
invalidated on due process grounds only under the most
egregious of circumstances. This case represents one of the
rare instances in which even such a permissive standard has
been violated.
Eastern, 524 U.S. at 550, 118 S. Ct. at 2159. As with the Coal Act, Resolution No. 11
represents a rare instance where an economic regulation violates due process because of its
severe retroactive impact and because its enactment was arbitrary and irrational.
The Fifth Amendment to the United States Constitution proscribes the taking
of private property for public use without just compensation. It has been explained that,
“[t]he aim of the Clause is to prevent the government 'from forcing some people alone to
bear public burdens which, in all fairness and justice, should be borne by the public as a
whole.'” Eastern, 524 U.S. at 522, 118 S. Ct. at 2146 (quoting Armstrong v. United States,
364 U.S. 40, 49, 80 S. Ct. 1563, 1569, 4 L. Ed. 2d 1554 (1960)). “The Fifth Amendment
applies to the states through the Fourteenth Amendment.” United States Fid. & Guar. Co.
v. McKeithen, 226 F.3d 412, 416 n.7 (5th Cir. 2000) (citation omitted). By increasing the
premium tax charged to self-insured employers by an amount intended to reduce a six
billion dollar debt to which the self-insured employers did not contribute, the State has
perpetrated an unconstitutional taking of the self-insured employers' property.
[o]f course, a party challenging governmental action
as an unconstitutional taking bears a substantial burden. See United
States v. Sperry Corp., 493 U.S. 52, 60[, 110 S. Ct. 387,
393-394, 107 L. Ed. 2d 290] (1989). Government regulation
often “curtails some potential for the use or economic
exploitation of private property,” Andrus v. Allard, 444 U.S. 51,
65[, 100 S. Ct. 318, 326, 62 L. Ed. 2d 210] (1979), and “not
every destruction or injury to property by governmental action
has been held to be a 'taking' in the constitutional sense,”
Armstrong, supra, at 48[, 80 S. Ct. at 1568.] In light of that
understanding, the process for evaluating a regulation's
constitutionality involves an examination of the “justice and
fairness” of the governmental action. See Andrus, 444 U.S., at
65[, 100 S. Ct., at 327]. That inquiry, by its nature, does not
lend itself to any set formula, see ibid., and the determination
whether “'justice and fairness' require that economic injuries
caused by public action [must] be compensated by the
government, rather than remain disproportionately concentrated
on a few persons,” is essentially ad hoc and fact intensive,
Kaiser Aetna v. United States, 444 U.S. 164, 175[, 100 S. Ct.
383, 390, 62 L. Ed. 2d 332 (1979)] (internal quotation marks
omitted).
Eastern, 524 U.S. at 523, 118 S. Ct. at 2146. The Court then stated that it had identified the
following three factors that are of “particular significance” to a Takings Clause analysis of
an economic regulation: (1) “[T]he economic impact of the regulation;” (2) “its
interference with reasonable investment backed expectations;” and (3) “the character of the
governmental action.” Id at 523-24, 118 S. Ct. at 2146 (quoting Kaiser Aetna v. United
States, 444 U.S. 164, 175, 100 S. Ct. 383, 390, 62 L. Ed. 2d 332 (1979)). Applying the
three-part test, the Court concluded that the premiums assessed against Eastern Enterprises
did, in fact, amount to an unconstitutional taking of Eastern Enterprises' property.
With respect to the first factor, the economic impact of the regulation, the
Supreme Court in Eastern concluded that there was no doubt the Coal Act had “forced a
considerable financial burden upon Eastern.” Id. at 529, 118 S. Ct. at 2149. In reaching
this conclusion, the Court noted that Eastern's cumulative payments under the Coal Act
would be between fifty to one-hundred million dollars, and that it was “clearly deprived of
the amounts it must pay.” Id. The Court also noted that “an employer's statutory liability
for multiemployer plan benefits should reflect some 'proportion[ality] to its experience with
the plan.'” Id. at 530, 118 S. Ct. at 2149 (citation omitted). The Court explained that “[t]he
company's obligations under the [Coal] Act depend solely on its roster of employees some
30 to 50 years before the statute's enactment, without any regard to responsibilities that
Eastern accepted under any benefit plan the company itself adopted.” Id. at 531, 118 S. Ct.
at 2150.
Id.
In the instant case, the State has imposed a substantial financial burden on
self-insured employers that bears no relationship to their experience with the Second Injury
Fund. For Fiscal Year 1998 alone, self-insured employers as a whole were assessed more
than forty-five million dollars under Resolution No. 11 to reduce the deficit. The premiums
imposed upon the appellants individually for that single year were similarly substantial.
Weirton Steel was assessed $206,000, Pine Ridge was assessed $271,228, and Eastern
Associated was assessed $7,265,945. These premiums were assessed against these self-
insured employers notwithstanding the fact that they had already fulfilled their obligations
to their second-injury employees that arose during the period during which the deficit was
created.
(See footnote 34)
Clearly, then, the sizable premiums imposed under Resolution No. 11 for Fiscal
Year 1998 have no relation to these self-insured employers' experience with the Second
Injury Fund.
In addressing the second element of the test, whether the regulation interferes
with reasonable investment-backed expectations, the Eastern Court expressed concern over
the retroactivity of the Coal Act. With respect to a regulation's imposition of a retroactive
liability, the Court explained
Congress . . . may impose retroactive liability to some degree,
particularly where it is “confined to short and limited periods
required by the practicalities of producing national legislation.”
[Pension Benefit Guar. Corp. v. R. A. Gray & Co., 467 U.S.
717, 731, 104 S. Ct. 2709, 2719, 81 L. Ed. 2d 601 (1984)]
(internal quotation marks omitted). Our decisions, however,
have left open the possibility that legislation might be
unconstitutional if it imposes severe retroactive liability on a
limited class of parties that could not have anticipated the
liability, and the extent of that liability is substantially
disproportionate to the parties' experience.
Eastern at 528-29, 118 S. Ct. at 2149. Regarding Eastern Enterprises claims, the Court
remarked that
the Coal Act operates retroactively, divesting Eastern of
property long after the company believed its liabilities under
the 1950 W&R Fund to have been settled. And the extent of
Eastern's retroactive liability is substantial and particularly far
reaching. . . . The distance into the past that the Act reaches
back to impose a liability on Eastern and the magnitude of that
liability raise substantial questions of fairness.
Id. at 534, 118 S. Ct. at 2152 (internal citations omitted). The Eastern Court ultimately
concluded that nothing included in the plans in which Eastern Enterprises had participated
prior to its exit from the coal industry, and nothing in the pattern of the Federal
Government's involvement in the coal industry, could have led Eastern Enterprises to
conclude that it would have a future responsibility for providing lifetime health benefits to
its retirees and their families. Id. at 535-36, 118 S. Ct. at 2152.
The Fifth Circuit similarly found the nature of the government action at issue
in McKeithen to be unusual. In this regard, the Court remarked
[w]ithout identifying a compelling problem, such as the
financial insecurity of the SIF, the state enacted a solution that
“singles out certain [parties] to bear a burden that is substantial
in amount, based on the [parties'] conduct far in the past, and
unrelated to any commitment that the [parties] made or to any
injury they caused . . . .”
226 F.3d at 419 (citation omitted).
Here the State has singled out self-insured employers to bear a significant
burden that they had no role in creating. Rather, the debt sought to be relieved by
Resolution No. 11 was created by the State's unlawful conduct perpetuated over fifty years
of failing to fund the Second Injury Fund as it was statutorily required to do. The
employers here were either exempted from paying into the Second Injury Fund, or were
charged a premium tax for their years of participation in the Fund during those years they
participated. Consequently, I conclude that the State's action in assessing a retroactive
premium against these self-insured employers “implicates fundamental principles of
fairness underlying the Takings Clause.” Eastern, 424 U.S. at 537, 118 S. Ct. at 2153.
In the appeal to the United States Supreme Court
the plaintiff in Robertson argued that the amended statute was not enforceable
because it violated the Contract Clause. In a unanimous opinion the Supreme
Court agreed with the plaintiff. The opinion in Robertson found that
the statute in-place when the plaintiff was in office created an implied contract
that entitled him to recover a full commission. This issue was succinctly addressed
in the opinion as follows:
It is well understood that
the contract clause does not limit the power of a state during the terms of
its officers to pass and give effect to laws prescribing for the future the
duties to be performed by, or the salaries or other compensation to be paid
to, them. But, after services have been rendered by a public officer under
a law specifying his compensation, there arises an implied contract under which
he is entitled to have the amount so fixed. And the constitutional protection
extends to such contracts just as it does to those specifically expressed.
The selection of plaintiff to be the Revenue Agent amounted to a request or
direction by the State that he exert the authority and discharge all the duties
of that office. In the performance of services so required of him plaintiff
made the investigations and brought the suits to discover and collect the delinquent
taxes. Under the statutes then in force as construed by the highest court of
the State, he thereupon became entitled to the specified percentages of the amounts subsequently collected on account of
the taxes sued for. The retroactive application of c. 170 would take from him
a part of the amount that he had theretofore earned. That would impair the
obligation of the implied contract under which he became entitled to the commissions.
276 U.S. at 178-179, 48 S. Ct. at 268 (citation omitted). See also
Fisk v. Jefferson Police Jury, 116 U.S. 131, 134, 6 S. Ct. 329, 330,
29 L. Ed. 587 (1885) (“[A]fter the services have been rendered, under
a law, resolution, or ordinance which fixes the rate of compensation, there
arises an implied contract to pay for those services at that rate.”).
The state of West Virginia and all governmental agencies or departments created by it, including county boards of education, political subdivisions of the state, any volunteer fire department or company and other emergency service organizations as defined by article five [§§ 15-5-1 et seq.], chapter fifteen of this code, and all persons, firms, associations and corporations regularly employing another person or persons for the purpose of carrying on any form of industry, service or business in this state, are employers within the meaning of this chapter and are hereby required to subscribe to and pay premium taxes into the workers' compensation fund for the protection of their employees and shall be subject to all requirements of this chapter and all rules and regulations prescribed by the workers' compensation division with reference to rate, classification and premium payment: Provided, That such rates will be adjusted by the division to reflect the demand on the compensation fund by the covered employer.
(2) In order to be approved for
self-insurance status, the
employer must:
(A) Have an effective health
and safety program at its workplaces; and
(B) Provide security or bond
in an amount to be determined by the compensation programs performance council
which shall balance the employer's financial condition based upon an analysis
of its audited financial statements and the full accrued value based upon generally
accepted accounting principles of the employer's existing and expected liability;
and
(C) Security or bond which may
be in such form as the commissioner and the compensation programs performance
council created pursuant to section one [§ 21A-3-1], article three,
chapter twenty-one-a of this code permits.
(3) Any employer whose record
upon the books of the division shows a liability, as determined on an accrued
basis against the workers' compensation fund incurred on account of injury to
or death of any of the employer's employees, in excess of premiums paid by such
employer, shall not be granted the right, individually and directly or from such
benefit funds or system of compensation, to be self-insured until the employer
has paid into the workers' compensation fund the amount of such excess of liability
over premiums paid, including the employer's proper proportion of the liability
incurred on account of catastrophes or second injuries as defined in section
one [§ 23-3-1], article three of this chapter and charged against such
fund.
(4) Upon a finding that the employer
has met all of the requirements of this section, the employer may be permitted
self-insurance status. An annual review of each self-insurer's continuing ability to meet its obligations and the requirements of this section
shall be made by the workers' compensation division. This review shall include
a redetermination of the amount of security or bond which shall be provided
by the employer. Failure to provide any new amount or form of security or bond
may, in the division's discretion, cause the employer's self-insurance status
to be terminated. The security or bond provided by employers prior to the second
day of February, one thousand nine hundred ninety-five, shall continue in full
force and effect until the performance of the employer's annual review and
the entry of any appropriate decision on the amount or form of the employer's
security or bond.
(5) Whenever a self-insured employer
shall furnish security or bond, including replacement and amended bonds and other
securities, as security to ensure the employer's or guarantor's payment of all
obligations under this chapter for which the security or bond was furnished,
such security or bond shall be in the most current form or forms approved and
authorized by the division for use by the employer or its guarantors, surety
companies, banks, financial institutions or others in its behalf for such purpose.
preceding quarter. Each self-insured employer shall pay into the workers'
compensation fund as portions of its self-insured premium tax:
(1) A sum sufficient to pay the
employer's proper portion of the expense of the administration of this chapter;
(2) A sum sufficient to pay the
employer's proper portion of the expense of claims for those employers who are
in default in the payment of premium taxes or other obligations;
(3) A sum sufficient to pay the
employer's fair portion of the expenses of the disabled workers' relief fund;
and
(4) A sum sufficient to maintain
as an advance deposit an amount equal to the previous quarter's payment of each
of the foregoing three sums.
Two of the new trusts, the UMWA 1950 Benefit Plan
and Trust (1950 Benefit Plan) and the UMWA 1974 Benefit Plan and Trust (1974
Benefit Plan), provided nonpension benefits, including medical benefits. Miners
who retired before January 1, 1976, and their dependents were covered by the
1950 Benefit Plan, while active miners and those who retired after 1975 were
covered by the 1974 Benefit Plan.
Id.