JOHN T STONE V STATE OF MICHIGAN
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STATE OF MICHIGAN
COURT OF APPEALS
JOHN T. STONE and PHILLIP M. STEVENS, for
Themselves and All Others Similarly Situated,
FOR PUBLICATION
September 21, 2001
9:05 a.m.
Plaintiffs-Appellees,
v
STATE OF MICHIGAN and DEPARTMENT OF
TREASURY,
Defendants-Appellants.
No. 217485
Court of Claims
LC No. 98-016939-CM
Updated Copy
December 7, 2001
Before: M.J. Kelly, P.J., and Whitbeck and Collins, JJ.
WHITBECK, J.
Defendants state of Michigan and the Department of Treasury appeal by leave granted an
order granting plaintiffs' motion for summary disposition pursuant to MCR 2.116(C)(10).
Defendants challenge the Court of Claims' determination that monthly payments for accumulated
sick leave under a special statutory provision1 of an early retirement program for state employees
are exempt from state, county, city, and other local taxes. We affirm.
I. Basic Facts And Procedural History
A. Early Retirement And Accumulated Sick Leave
In 1996, the Legislature created an early retirement program for state employees who met
certain criteria, including age and length of service. This was part of a larger effort to extend to
state employees some of the benefits private sector employees enjoyed at the time, such as
defined contribution employment plans.2 To streamline the state work force and reduce state
payroll costs, the Legislature in 1997 widened the group of state workers who were eligible to
participate in the program.3 The Legislature incorporated the terms of this special early
1
MCL 38.40(1).
2
See 1996 PA 487.
3
See 1997 PA 3.
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retirement program in the State Employees' Retirement Act (SERA),4 determining the levels of
compensation these retirants5 would receive.6
Plaintiffs are a class of individuals who retired or contemplated retiring under this early
retirement program. As they would likely point out, length of service is only one factor that
affects the amount of money each retirant receives under this early retirement program. Under
the compensation plan of the Michigan Civil Service Commission, all state workers are entitled
to accumulate sick leave during the course of their employment.7 Commission Rule 5-5.4(a)
provides that "[c]rediting and utilization of sick leave, as well as payment at retirement,
separation, or death shall be in accordance with provisions contained in the official compensation
plan," meaning that this accumulated sick leave may be payable at retirement. The compensation
plan distinguishes between workers hired before and after October 1, 1980. Workers hired
before October 1, 1980, are paid for accumulated sick leave when they retire. Employees hired
after October 1, 1980, are not eligible to be paid for unused sick leave at all.
Ordinarily, payment for accumulated sick leave to retirants hired by the state before
October 1, 1980, occurs in a single lump sum. According to defendants, the state taxed each
retirant's lump-sum payment as income in the year the retirant received it. However, the SERA
provides in MCL 38.19f(3) that "[a]ny amount that a member retiring under this section would
otherwise be entitled to receive in a lump sum at retirement on account of accumulated sick leave
shall be paid in 60 consecutive equal monthly installments." When the state began making
monthly accumulated sick leave payments to retirants under the 1996-97 early retirement
program, the state taxed these payments as if they were the traditional lump-sum payments for
accumulated sick leave, apparently withholding both state and local taxes from the payments.
B. Plaintiffs' Suit
In March 1998, plaintiffs sued in the Court of Claims, alleging that defendants could not
tax these monthly accumulated sick leave payments. Plaintiffs claimed in their first amended
complaint that withholding income taxes from the monthly accumulated sick leave payments was
a breach of contract and deprived them of property without due process of law.8 Further, they
contended, the right to monthly accumulated sick leave payments under MCL 38.19f(3) had to be
viewed in light of MCL 38.40(1), a related subsection of the SERA that states:
4
See MCL 38.19f.
5
A "retirant" is "a person who has ceased to be a member of the retirement system by reason of
retirement with a pension or retirement allowance payable from the funds of the retirement
system." MCL 38.1h(2).
6
See MCL 38.19f(5).
7
See Commission Rule 5-5.4, formerly Rule 5-4.4.
8
See Const 1963, art 1, § 17.
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The right of a person to a pension, an annuity, a retirement allowance, any
optional benefit, any other right accrued or accruing to any person under the
provisions of this act, the various funds created by this act, and all money and
investments and income of the funds, are exempt from any state, county,
municipal, or other local tax, and shall not be subject to execution, garnishment,
attachment, the operation of bankruptcy or insolvency laws, or other process of
law, and shall be unassignable except as otherwise provided in this act.[9]
Thus, plaintiffs argued that defendants had violated the SERA by withholding money owed to the
state for the accumulated sick leave payments and by withholding taxes for other taxing
authorities.
Plaintiffs moved for summary disposition under MCR 2.116(C)(9) and (10). Defendants
responded by requesting summary disposition in their favor pursuant to MCR 2.116(I)(2). The
parties essentially disputed whether the right to be paid for accumulated sick leave "accrued"
under the SERA, which would then determine whether the monthly accumulated sick leave
payments were tax-exempt. Defendants argued that the right to be paid for accumulated sick
leave "accrued" under the compensation plan and, therefore, that the monthly accumulated sick
leave payments could be taxed in the same way as the lump-sum accumulated sick leave
payments. In support of their argument for tax exemption, plaintiffs pointed out that the SERA,
MCL 38.19f(3), specifically prescribes the manner in which they are paid for accumulated sick
leave and, therefore, the monthly accumulated sick leave payments "accrued" under the SERA.
The Court of Claims rejected defendants' argument that the case could not proceed
because plaintiffs had failed to join as necessary parties the local taxing authorities for whom the
state was withholding taxes. However, the Court of Claims denied plaintiffs' motion for
summary disposition under MCR 2.116(C)(9). Instead, the Court of Claims granted defendants
summary disposition of plaintiffs' claim that withholding taxes on monthly accumulated sick
leave payments was a constitutional tort, violating the right to due process of law. The Court of
Claims granted plaintiffs' motion for summary disposition regarding the claim for breach of
contract under MCR 2.116(C)(10). The Court of Claims reasoned the monthly accumulated sick
leave payments constituted a right that "accrued" under the SERA as well as an "optional
benefit." Accordingly, the monthly accumulated sick leave payments were tax-exempt under
MCL 38.40(1). The Court of Claims also determined that Const 1963, art 9, § 24 protected the
vested right these retirants had in being paid for their accumulated sick leave from being
diminished as a matter of contract law. The Court of Claims concluded that, by taxing these
monthly accumulated sick leave payments when the retirants did not earn interest on the unpaid
accumulated sick leave over the five-year pay-out period, defendants breached this contract and
violated the constitution.10 Consequently, the Court of Claims issued an injunction preventing
defendants from "withholding income taxes from Plaintiffs' sick leave installment payments," but
later stayed the effect of this injunction pending appeal.
9
Emphasis added.
10
Const 1963, art 9, § 24.
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C. Defendants' Appeal
On appeal, defendants advance the same legal arguments concerning whether the monthly
accumulated sick leave payments are taxable. Defendants also contend that the Court of Claims
erred in concluding that plaintiffs did not have to join as defendants all entities that received the
taxes from the monthly accumulated sick leave payments. Further, defendants assert that the
Court of Claims lacked the authority to issue an injunction against defendants.
II. THE SERA
A. Standard Of Review
To address this portion of the appeal, we must interpret and apply the relevant statutes, a
task this Court undertakes by conducting review de novo.11
B. Summary Disposition And Statutory Interpretation
A motion for summary disposition under MCR 2.116(C)(10) tests the factual
underpinnings of a claim other than an amount of damages, and the deciding court considers all
the evidence, affidavits, pleadings, admissions, and other information available in the record.12
The deciding court must look at all the evidence in the light most favorable to the nonmoving
party, who must be given the benefit of every reasonable doubt.13 Only if there is no factual
dispute, making the moving party entitled to judgment as a matter of law, would summary
disposition be appropriate.14 The process of applying a statute intersects with this legal standard
for summary disposition at the point where the court deciding a motion for summary disposition
considers whether the moving party is entitled to judgment as a matter of law. In other words,
the court must understand what the law is in order to determine which party is entitled to
judgment when there is a settled factual record.15
Our primary goal when interpreting statutes is to determine and give effect to the
Legislature's intent.16 The best way to determine this legislative intent is to examine the
11
Cardinal Mooney High School v Michigan High School Athletic Ass'n, 437 Mich 75, 80; 467
NW2d 21 (1991).
12
MCR 2.116(G)(5); Smith v Globe Life Ins Co, 460 Mich 446, 454; 597 NW2d 28 (1999).
13
Atlas Valley Golf & Country Club, Inc v Village of Goodrich, 227 Mich App 14, 25; 575
NW2d 56 (1997).
14
See Auto Club Ins Ass'n v Sarate, 236 Mich App 432, 437; 600 NW2d 695 (1999).
15
See, generally, Kent v Alpine Valley Ski Area, Inc, 240 Mich App 731, 737-744; 613 NW2d
383 (2000) (interpreting statute in order to determine whether trial court erred in granting
summary disposition).
16
See State Farm Fire & Casualty Co v Old Republic Ins Co (On Remand), 242 Mich App 105,
108; 617 NW2d 715 (2000).
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language of the statute at issue17 because we presume that the Legislature intended to give the
statute the meaning it "plainly expressed."18 If the meaning of the statute is clear, then courts
have no further role in interpreting it; the statute must be applied as written.19 However, if the
statute's meaning is not clear, courts "must look to the object of the statute in light of the harm it
is designed to remedy, and strive to apply a reasonable construction that will best accomplish the
Legislature's purpose," without "abandon[ing] the canons of common sense."20 In doing this,
courts must give effect to every phrase, clause, and word in a statute in order to avoid rendering
any part of a statute meaningless.21 Unless specifically defined in the statute, every word or
phrase in a statute should be given its obvious and ordinary meaning, considering the context and
any technical terms, which must be given their particular connotation.22
There are also special rules of statutory construction that apply to pension laws23 and laws
granting tax exemptions.24 The parties engage in a lengthy skirmish in their briefs concerning
which rule of construction should take precedence. However, we need not employ those rules in
this case, nor resolve any potential conflict between them. As we explain in greater detail below,
we conclude that the Legislature's intent is clear from the statutes at issue.
C. "Rights" And "Accruals"
(1) "Rights" In MCL 38.40(1)
The parties agree that plaintiffs are not entitled to the tax exemption in MCL 38.40(1)
under the language referring to a "pension," an "annuity," or a "retirement allowance." Rather,
their dispute mainly concerns whether plaintiffs are entitled to this tax exemption because their
"right" to be paid for accumulated sick leave "accrued" or is "accruing" under the SERA.25 The
17
See Gier v Auto-Owners Ins Co, 244 Mich App 336, 339; 625 NW2d 398 (2001).
18
Platte Lake Improvement Ass'n v Dep't of Natural Resources, 218 Mich App 424, 427; 554
NW2d 342 (1996).
19
See Heinz v Chicago Rd Investment Co, 216 Mich App 289, 295; 549 NW2d 47 (1996).
20
See Marquis v Hartford Accident & Indemnity (After Remand), 444 Mich 638, 644; 513 NW2d
799 (1994) (citations omitted).
21
See Heinz, supra at 295.
22
See MCL 8.3a; Western Michigan Univ Bd of Control v Michigan, 455 Mich 531, 539; 565
NW2d 828 (1997).
23
See Bannon v Saginaw, 420 Mich 376, 385; 362 NW2d 668 (1984).
24
See Elias Bros Restaurants, Inc v Dep't of Treasury, 452 Mich 144, 150; 549 NW2d 837
(1996); Holland Home v Grand Rapids, 219 Mich App 384, 396; 557 NW2d 118 (1996).
25
We do not address whether the Court of Claims erred in determining that MCL 38.19f(3)
creates an "optional benefit" because we conclude that the accumulated sick leave payments
under that statute fall within the language of MCL 38.40(1) granting "any other right" that
accrued under the SERA tax-exempt status.
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SERA does not specifically define what constitutes a "right," nor how a right "accrues" under its
provisions. We do not need to consult a dictionary to determine that the word "right," used in
this context as a noun, has the plain meaning of a legal entitlement. Thus, when discussing
"rights," MCL 38.40(1) refers to a person's legal entitlement to receive a "pension," an "annuity,"
a "retirement allowance," an "optional benefit," or any other right accrued or accruing under the
SERA.
If "legal entitlement" is a broad interpretation of the word "right," we conclude that it is
purposefully so. By listing the most common varieties of retirement benefits and then adding
"any other right accrued or accruing to any person under the provisions of this act," the
Legislature made this category of tax-exempt rights a wide one.26 As long as the property that
would otherwise be taxed is enumerated in MCL 38.40(1) or "accrued" or is "accruing" under the
SERA, it is free from the specified taxes.
(2) "Accruals" In MCL 38.40(1)
What, then, does it mean for a right—a legal entitlement—to "accrue" under the SERA?
According to the dictionary, to accrue means in relevant part "to happen or result as a natural
growth, [or] addition" and "to become a present and enforceable right."27 This second definition
is somewhat circular in its reasoning, suggesting that a right accrues once it becomes a right.28
However, when read logically with the "natural addition or growth" language, the dictionary
definition implies that a right accrues under the SERA if the SERA is a statutory basis for the
right.
Defendants, in their strongest argument, point to the language in MCL 38.19f(3) to
contend that the legal entitlement to be paid for accumulated sick leave does not "accrue" under
the SERA. Specifically, they argue that accumulated sick leave is an "amount" that plaintiffs
"would otherwise be entitled to receive in a lump sum at retirement," emphasizing that the word
"otherwise" indicates that the right to be paid comes from some source outside the SERA.
Certainly, they argue, it is plain that neither MCL 38.19f(3) nor any related provisions "created"
this right under the SERA because it already existed under an entirely separate program, the
Commission's compensation plan. Nor is the right to be paid for accumulated sick leave a "new"
right under the SERA, defendants note, because the retirants accumulated the unpaid sick leave
over the course of their employment with the state pursuant to the compensation plan. While
each of these assertions may be true as a matter of fact, nothing in MCL 38.40(1) requires that
the SERA "create" a right to payment or that this right to payment be "new" in order for it to be
tax-exempt. That different aspects of the right to be paid for accumulated sick leave might be
26
MCL 38.40(1) (emphasis added).
27
Random House Webster's College Dictionary (2d ed), p 9.
28
The issue is whether the right accrued under the SERA, not specifically at what time the right
accrued. Thus, unlike an issue implicating a statute of limitations, it is unnecessary to focus on
the timing of the SERA amendments in 1996 and 1997 and their relationship to the dates when
plaintiffs retired.
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traced to more than one legal source is not determinative. Nowhere in MCL 38.40(1) did the
Legislature indicate that that the SERA must be the exclusive source of a right for that right to be
tax-exempt. Instead, MCL 38.40(1) suggests that when the Legislature gives legal force and
effect to an entitlement by incorporating it in the SERA, the entitlement is part of the SERA and,
therefore, "accrued" or is "accruing" under its provisions.
By relying on a technical definition of "accrued compensation" from the accounting
context, defendants fail to posit a meaningful definition of the words "accrued" or "accruing"
under the SERA. In other words, defendants confuse how state employees accumulate unused
sick leave with the right to be paid for that leave when the employees retire from state service
under this specific early retirement program. We do not doubt that plaintiffs each accumulated
sick leave over the course of their employment pursuant to the Commission's compensation plan,
not just when the Legislature decided to amend the SERA to offer this early retirement program.
However, we are equally sure that the right to be paid for this accumulated sick leave in monthly
installments accrued under MCL 38.19f(3).
(3) The Form Of Payment And The Right to Payment
Defendants have spent significant time arguing that, by accepting the terms of the early
retirement program incorporated in the SERA, each retirant waived the right to receive
accumulated sick leave payments in any form other than the sixty monthly installments.
Defendants make this argument in an attempt to refute the Court of Claims' reasoning that
plaintiffs could not waive their contractual rights resulting from work for the state. However,
defendants' argument illustrates how inextricably intertwined this form of monthly accumulated
sick leave payment is with the substantive right to be paid for accumulated sick leave at
retirement. The Legislature did not distinguish between the substantive right to be paid "any
amount" that accrued under the SERA and the process of payment under the SERA. The right to
a form of payment for accumulated sick leave, in this instance sixty consecutive monthly
payments, comes from MCL 38.19f(3). This satisfies the broad language in MCL 38.40(1) that
extends tax exemption to "any other right accrued or accruing to any person under the provisions
of"29 the SERA.
Whether this monthly payment plan under MCL 38.19f(3) is financially more or less
favorable to retirants is not germane when construing the tax-exemption language in MCL
38.40(1). Rather, we emphasize, the Legislature placed these monthly accumulated sick leave
payments squarely within MCL 38.19f(3). MCL 38.19f(3) is unambiguously part of the SERA.
It, therefore, is the SERA itself, not simply the Commission's compensation plan, that entitles
retirants under the 1996 and 1997 amendments to be paid for accumulated sick leave in sixty
consecutive monthly installments. Indeed, MCL 38.19f(3) also explicitly ties the substantive
right to monthly accumulated sick leave payments to the SERA by acknowledging that the
retirants who receive these sixty installment payments are actually "retiring" under the SERA.
29
Emphasis added.
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The Legislature, which is familiar with the rules of statutory construction30 and existing
laws, knew that the tax exemption in MCL 38.40(1) existed when it amended the SERA in
1996 and 1997. Had the Legislature intended to make monthly accumulated sick leave payments
taxable, it could have done one of three things. First, the Legislature could have enacted
legislation that was distinct from the SERA to govern the early retirement program, thereby
taking the accumulated sick leave payments and any other aspect of the early retirement program
outside the SERA and the tax-exemption provisions of MCL 38.40(1). Second, the Legislature
could have inserted a clause within the SERA excluding the monthly accumulated sick leave
payments from the tax-exemption provisions of MCL 38.40(1). The Legislature, in enacting
other subsections of MCL 38.19f, used this very technique.32 Third, the Legislature could have
amended MCL 38.40(1) itself to exclude the monthly accumulated sick leave payments explicitly
from the tax exemption. The Legislature's failure to take any one of these actions is evidence of
its intent to make the tax-exemption provisions of MCL 38.40(1) apply to the monthly
accumulated sick leave payments under MCL 38.19f(3).
31
(4) "Rights" and "Accruals" Redux
The statutory entitlement to monthly accumulated sick leave payments is a "right" that
"accrues" under the SERA. It is the SERA itself, not the Commission's compensation plan, that
entitles retirants under the 1996 and 1997 amendments to be paid in sixty consecutive monthly
installments. Because the Legislature knew of the tax-exemption provisions of MCL 38.40(1)
when it enacted the 1996 and 1997 amendments of the SERA, its intent was clear: the
Legislature intended that the sixty consecutive monthly payments under MCL 38.19f(3) be taxexempt pursuant to MCL 38.40(1).
D. Ejusdem Generis
Defendants contend that the Legislature intended that only "genuine" pension and
retirement benefits be tax-exempt. Defendants point out that, in MCL 38.40(1), the Legislature
referred to "a pension, an annuity, a retirement allowance, any optional benefit" before using the
"any other right" wording. Defendants, without citing any authority, claim that only pension and
retirement benefits that are "created" under the SERA, and that are also payable from funds
designated in the SERA, constitute these tax-exempt benefits. Because the SERA did not
"create" the right to accumulated sick leave, and because the monthly accumulated sick leave
payments are not paid from funds designated within the SERA, defendants argue, accumulated
sick leave payments are outside the class of these tax-exempt benefits and therefore taxable.
30
See Alma Piston Co v Dep't of Treasury, 236 Mich App 365, 370; 600 NW2d 144 (1999).
31
See Walen v Dep't of Corrections, 443 Mich 240, 248, 505 NW2d 519 (1993) ("It is a wellknown principle that the Legislature is presumed to be aware of, and thus to have considered the
effect on, all existing statutes when enacting new laws.").
32
See, e.g., MCL 38.19f(1), (5).
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In making this argument, defendants rely on the ejusdem generis doctrine. This doctrine
holds that if
"general words follow an enumeration of persons or things, by words of a
particular and specific meaning, such general words are not to be construed in
their widest extent, but are to be held as applying only to persons or things of the
same general kind or class as those specifically mentioned."[33]
Nevertheless, courts are not customarily at liberty to depart from the plain language of a statute
when the Legislature chooses to list various actions, conditions, persons, places, or other things
in a statute. The ejusdem generis doctrine does not control the interpretation and application of a
statute if the Legislature has clearly expressed its intent even if that intent expands the category at
issue significantly beyond the implication of the other words used.34
We emphasize that we simply cannot envision language broader than "any other right" in
the context of MCL 38.40(1). As the dictionary suggests, the word "any" suggests the absence of
limits altogether.35 This broad language is purposeful. The remainder of the sentence requires
that the right "accrue" under the SERA. This imposes a logical limitation on the kind of right
that is tax-exempt. "Other rights" that are tax-exempt earn this status because those rights are, in
some way, related to retirement by state employees by virtue of their inclusion in the SERA.
Despite defendants' unstated fear to the contrary, this interpretation does not permit rights
unrelated to retirement under the SERA to become tax-exempt. The tax exemption for
accumulated sick leave is relevant only when state employees who were hired before October 1,
1980, retire under the SERA.
The Court of Claims observed that the Legislature might have intended for this tax
emption to make up for the loss of investment income, that is, interest, that these retirants might
earn on their subsequent investments if the state paid the accumulated sick leave in a lump sum
rather than in sixty consecutive monthly installments. In truth, however, we do not need to
decide why the Legislature used such all-encompassing language. The underlying purpose of this
legislation does not alter the unambiguous language in MCL 38.40(1). When the language is
clear, we need not apply the ejusdem generis doctrine.36 Further, if we were to apply the doctrine
in this case, we would exceed our authority by grafting onto MCL 38.40(1) a condition for tax
exemption that the Legislature chose not to impose.
33
Koester v City of Novi, 458 Mich 1, 21, n 1; 580 NW2d 835 (1998), quoting Black's Law
Dictionary (6th ed), p 517.
34
Benedict v Dep't of Treasury, 236 Mich App 559, 565-566; 601 NW2d 151 (1999).
35
See Random House Webster's College Dictionary (2d ed), pp 60-61 ("any" means "one or
more without specification or identification," "whatever or whichever it may be," "every," "all").
36
Benedict, supra.
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E. Absurd Result
Defendants also argue that this Court should not interpret MCL 38.40(1) in a way that
makes the monthly accumulated sick leave installment payments under MCL 38.19f(3) taxexempt because it would hand plaintiffs a windfall that the Legislature did not intend. Evidently,
they contend that this interpretation could entitle retirants to a lump-sum payment under the
Commission's compensation plan and monthly payments under MCL 38.19f(3). This would be
so because the Legislature does not have the authority to override the Commission's
constitutional rulemaking authority under Const 1963, art 11, § 5. Thus, defendants argue, this
Court should not affirm what amounts to an absurd result.
In the abstract, we would be inclined to agree that this is the sort of absurd result our
fiscally conscious Legislature does not ordinarily intend.37 There are, however, any number of
problems with this conclusion. First, defendants do not claim that this double payout will
actually occur. Second, in this suit, plaintiffs have not asked for relief that includes a double
payout for accumulated sick leave; plaintiffs contend that MCL 38.19f(3) alters only the timing
of these accumulated sick leave payments, not their amount. Third, defendants concede that
installment payments do not violate any Commission rules, leaving no conflict between the
respective constitutional authorities of the Commission and the Legislature.38 Rather, this is
simply an area where the Legislature and the Commission have exercised their respective
authorities in a way that overlap to a certain extent,39 but do not infringe the other's exclusive
domain.
Further, if MCL 38.19f(3) were an unconstitutional attempt by the Legislature to invade
the Commission's authority, the unconstitutional nature of MCL 38.19f(3) would persist
regardless of the tax ramifications for the monthly accumulated sick leave payments. However,
defendants do not contest that qualified retirants are entitled to receive monthly accumulated sick
leave payments under MCL 38.19f(3) if the payments are taxed. Defendants cannot argue that
the Legislature invaded the Commission's province by making the monthly accumulated sick
leave payments tax-exempt without also challenging the Legislature's basic right to deal with
accumulated sick leave payments under MCL 38.19f(3) in the first place.
Our focus on the taxation ramifications for monthly accumulated sick leave payments is,
we observe, sensible in light of the Court of Claims' conclusion that denying tax-exempt status
for the monthly accumulated sick leave payments was unconstitutional because it diminished the
37
Note, however, that the "absurd result" doctrine is subject to significant and persuasive
criticism. See People v McIntire, 461 Mich 147, 156, n 2; 599 NW2d 102 (1999).
38
See, generally, Civil Service Comm v Auditor General, 302 Mich 673, 686-688; 5 NW2d 536
(1942) (holding that Legislature could not impose unconstitutional conditions in appropriations
bill for Michigan Civil Service).
39
See OAG, 1971-1972, No 4732, pp 72-73 (December 29, 1971).
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value of accumulated sick leave.40 However, we need not resolve whether withholding taxes
from the monthly accumulated sick leave payments would be unconstitutional under Const 1963,
art 9, § 24. We have already concluded that the Legislature intended for these payments to be
tax-exempt by enacting MCL 38.19f(3) with the knowledge that MCL 38.40(1) was in place. We
see no absurd result in the Legislature's choice to make these payments tax-exempt.
F. Conclusion
The Legislature made accumulated sick leave payments under MCL 38.19f(3) tax-exempt
in the "any other right" language in MCL 38.40(1). Because plaintiffs were entitled to judgment
as a matter of law, the Court of Claims did not err in granting their motion for summary
disposition on this contract claim.
III. Necessary Joinder
A. Issue Presented
Defendants argue that the Court of Claims could not compel them or the local taxing
authorities to refund the taxes they withheld from the accumulated sick leave payments without
first joining these local taxing authorities as necessary parties. Further, defendants contend that
the Court of Claims lacked jurisdiction to compel the local taxing authorities to refund the
accumulated sick leave taxes because plaintiffs failed to comply with the refund procedure in the
City Income Tax Act.41 However, the question presented in this appeal asks us only to determine
"[w]hether the court of claims erred in granting relief against local taxing authorities, where
plaintiffs failed to join the local taxing authorities as necessary parties."42 Defendants have failed
to present for appeal a question asking whether nonjoinder of the local taxing authorities
deprived the Court of Claims of authority to order defendants to refund the state taxes withheld
or to prevent defendants from withholding taxes in the future.43 Thus, we limit our review to the
question presented concerning any relief granted against local taxing authorities.
B. Local Taxing Authorities
As a preliminary matter, we question whether defendants, on behalf of the local taxing
authorities, have standing to challenge the relief the Court of Claims ordered. Defendants
contend that the failure to join the local taxing authorities denied those authorities an opportunity
to participate in a hearing and to defend against the plaintiffs' claims to accumulated sick leave
40
See Const 1963, art 9, § 24 ("The accrued financial benefits of each pension plan and
retirement system of the state and its political subdivisions shall be a contractual obligation
thereof which shall not be diminished or impaired thereby.").
41
MCL 141.501 et seq.
42
Emphasis added.
43
See MCR 7.212(C)(5); see also People v Miller, 238 Mich App 168, 172; 604 NW2d 781
(1999).
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taxes already in their respective city treasuries. The local taxing authorities do have a legitimate
and significant interest in being able to challenge any relief that they may have to afford plaintiffs
given the outcome of the legal controversy surrounding the interpretation of MCL 38.40(1).44
However, defendants have not explained how failing to join the local taxing authorities could
possibly affect defendants' rights and interests in this litigation, even though this sort of stake in
the outcome of the issue is a traditional benchmark of standing.45 Further, defendants freely
admit that they are not experts in local tax collection and "could not adequately represent the
interest of the cities affected . . . ." Consequently, we are uncertain why, in this appeal,
defendants take any position concerning the potential that the local taxing authorities will have to
refund taxes already collected from the monthly accumulated sick leave payments.
Even if defendants do have standing to challenge the Court of Claims' order as it concerns
the local taxing authorities, it is critical to understand that neither of the two orders the Court of
Claims entered directly affect the local taxing authorities in any respect. The first order, entered
in the record on November 20, 1998, granted summary disposition in part to defendants and in
part to plaintiffs. This order has extremely limited language granting relief to plaintiffs. The
order says only that "Defendants are hereby enjoined from withholding income taxes from
Plaintiffs' sick leave installment payments." This order does not require the local taxing
authorities to refund the accumulated sick leave taxes. Rather, this order grants prospective
equitable relief that is completely within defendants' control. The second order, entered in the
record on January 20, 1999, concerned only the parties' postjudgment motions. This order did
not grant any additional relief to plaintiffs concerning refunds, whether from the state or from
local taxing authorities.
Simply put, neither order requires any particular action or inaction by the local taxing
authorities. Nor does either order affect the local taxing authorities' rights to demand that the
successful plaintiffs follow appropriate statutory procedures for securing the refund.46 Thus,
defendants' argument that the Court of Claims exceeded its authority in granting plaintiffs relief
as it concerns the local taxing authorities is without merit.
44
Because the core issue in this case is a matter of statutory interpretation subject to review de
novo, we are not certain that the local taxing authorities will have legal grounds on which to
object to refunding the taxes to plaintiffs. In any event, plaintiffs in their brief on appeal assert
that they are willing to take the risk that failing to join the local taxing authorities will affect their
ability to collect refunds from the local taxing authorities.
45
See South Macomb Disposal Authority v Nat'l Surety Corp, 239 Mich App 344, 357; 608
NW2d 814 (2000).
46
At first, we were somewhat surprised at the limited relief the Court of Claims ordered for
plaintiffs. The Court of Claims' decision not to order any refunds counterbalances any
administrative efficiency plaintiffs achieved through class certification. Though the Court of
Claims efficiently resolved each class member's statutory entitlement to a refund of the
accumulated sick leave taxes withheld, each class member now will have to apply to the state and
relevant local taxing authorities to receive a refund. However, plaintiffs' failure to cross-appeal
the relief afforded to them through summary disposition suggests that this is a result they are
prepared to tolerate.
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IV. The Injunction
A. Standard Of Review
Defendants contend that the Court of Claims erred as a matter of law in enjoining
defendants from withholding taxes because MCL 205.28(1)(b) expressly prohibits injunctions
staying proceedings for the assessment and collection of a tax. Having erred in issuing the
injunction in the first place, defendants also argue, the Court of Claims again erred in refusing to
dissolve the injunction. To resolve this issue requires us to engage in statutory interpretation,
which we conduct de novo.47
B. MCL 205.28(1)
MCL 205.28(1) provides in relevant part:
The following conditions apply to all taxes administered under this act
unless otherwise provided for in the specific tax statute:
* * *
(b) An injunction shall not issue to stay proceedings for the assessment
and collection of a tax.
We cannot agree with defendants' basic proposition that this statute applies to the equitable
remedy the Court of Claims granted plaintiffs. The Court of Claims enjoined defendants from
withholding taxes for accumulated sick leave payments. The plain language in MCL 205.28(1)
prevents only injunctions meant "to stay proceedings for the assessment and collection of a tax."
Self-evidently, this was not a proceeding for the "assessment and collection" of a tax. Rather, it
was a lawsuit alleging that defendants had already assessed and collected taxes and would do so
again in the future, albeit unlawfully in both instances. Once the Court of Claims determined
that defendants had no legal right to collect these taxes, equitable relief was appropriate to
prevent further harm to plaintiffs. Though defendants cite a federal law prohibiting injunctions
in certain tax proceedings, this is a state taxation matter that must be resolved on state law
grounds.
Affirmed.
M.J. Kelly, P.J., concurred.
/s/ William C. Whitbeck
/s/ Michael J. Kelly
47
See Omelenchuk v City of Warren, 461 Mich 567, 571, n 10; 609 NW2d 177 (2000).
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