Professor of Law William S. Richardson School of Law UNIVERSITY OF KAWAI'" I AT MANOA 2515 Dole Street Honolulu, Hawai'i 96822

Transcription

1 JON M. VAN DYKE Professor of Law William S. Richardson School of Law UNIVERSITY OF KAWAI'" I AT MANOA 2515 Dole Street Honolulu, Hawai'i Tel: Fax: jvandyke@hawaii.edu Eugene S. Imai Senior Vice President for Administration 2444 Dole Street Bachman Hall Honolulu, Hawai'i Dear Mr. Imai: Nov. 6, 1997 I am writing this letter in response to your request for a summary legal analysis of the issues raised by the Governor's veto of H.B. 2234, H.D.1, S.D.l, C.D.1, and the opinion letter dated September 22, 1997 issued by the Department of the Attorney General on the effect of this veto. In my professional judgment the opinion letter of the Department of the Attorney General is not an adequate legal analysis of this complicated subject because it provides misleading guidance on one significant issue and ignores completely another important issue. This letter of mine will not provide a complete legal analysis of the subject, but will give an outline of my appraisal of the situation. The opinion of the Department of the Attorney General is seriously misleading (1) because it relies on the proposition that a legislative body "cannot bind successive Legislatures to make particular appropriations" and (2) because it totally ignores the obligations of a state under the Contract Clause of the U. s. Constitution, Article I, Section 10. The first proposition is simply incorrect. It [I] t is clear that the National Government has some capacity to make agreements binding future Congresses by creating vested rights." Uni ted States v. Winstar, 116 S.Ct. 2432, 2455 (1996) (plurality opinion of Justice Souter). Even more importantly, we do not in the present situation have a conflict between an earlier and a later legislature--instead we have a conflict between properly enacted statute and the Governor who is in violation of his consti tutional responsibilities to execute the law faithfully. The 1997 Legislature did pass a bill 1

2 (H.B. No. 2234, H.D.l, S.D.I, C.D.1) that would have made an adjustment to the statute that had been passed in 1995 (and which is now codified in H.R.S. Section ). But this new bill never took effect because the Governor vetoed it. No new statute was thus enacted to alter the previous statute. The previous statute is therefore still in place and is the governing law of this State. The Governor has no law-making power, nor does he have the power to ignore existing statutes. Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952)(holding that the President did not have law-making power); Hawai"i Constitution, Art. V, Sec. 5 (tithe governor shall be responsible for the faithful execution of the laws"). The Governor is thus obliged faithfully to carry out H.R.S. Section as it now reads. A Legislature Can Bind a Future Legislature. The view that a legislative body can never bind future legislatures to make appropriations has been considered and rej ected throughout our country's history. If a legislative enactment has the effect of creating a contractual obligation, then future legislative bodies will be obliged to perform according to the terms of that contract. One clear example would be an unfunded pension plan established by a legislative body which creates vested rights for government employees. The employees who perform according to the terms of the pension plan will be entitled to the retirement payments that they earned according to the formula established by the previous legislature, and no future legislature can unilaterally alter the terms of that contractual arrangement without subjecting the ~ government to liability for breach of the contract. The Winstar Case. The principle that governments are bound by their commitments was dramatically reaffirmed by the U.S. Supreme Court in the recent case of United States v. Winstar Corporation, 116 S.Ct (1996), which ruled that Congress's enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) constituted a breach of the contractual commitment that the United States (acting through the Federal Home Loan Bank Board) had made when it encouraged healthy financial institutions and outside investors to take over ailing financial institutions during the savings-and-loan crisis in the 1980s. The Bank Board had agreed that the acquiring insti tutions could use certain favorable accounting techniques that were later prohibited by the 1989 Congressional enactment of FIRREA. The Supreme Court ruled that because investors had relied on the government's commitment, no subsequent Congress could alter that commitment to the detriment of those who had relied upon it without violating the contract and thus being responsible to pay for the damages suffered by the investors. If such a conclusion is reached regarding a commitment made by an administrative agency, then it would certainly also be reached regarding a commitment made by the legislative body itself. Because the Contract Clause does not apply to acts of the federal 2

3 government, the Winstar decision was based on notions of due process and fundamental fairness. These notions also apply to actions of the states, but the Contract Clause provides additional specific language limiting the ability of the states to reject contractual commitments unilaterally. The Hughes Case. Of particular relevance to the present discussion is the case of Hughes v. State of Oregon, 848 P.2d 1018 (Ore. 1992), where the Oregon Supreme Court ruled that a subsequent legislature could not impose an income tax requirement on retirement funds that had been exempted from taxes pursuant to a previously-enacted statute. The court found that the retirement fund's tax exemption had been part of an employment contract, that a contractual obligation was formed upon the acceptance of employment by the employee, and that the tax exemption clause was a significant portion of such a contract. The court then found that the subsequent statute that purported to eliminate the taxfree status of the retirement benefits impaired a contractual obligation and thus violated the contract clause in Oregon's State Constitution. The court found that the language in the earlier statute establishing the tax exemption "on its face, unambiguously evinces an underlying promissory, contractual legislative intent." The language in the previous statute had said that "The rights of a person to a pension shall be exempt from all state, county, and municipal taxes." It is particularly significant for the present analysis that the Oregon Supreme Court relied heavily on the "shall be" language, ruling that when a statute's language is "indicative of a legislative commitment not to repeal or amend the statute in the future, such language confirms a conclusion that the statute is a statutory contract." The Hawai" i Legislature, of course, also used the strong language "shall formulate" in the 1995 enactment that is now codified in H.R.S. Section Although the Attorney General's opinion attempts to wish away the significance of the use of the word "shall," it cannot be denied that the Legislature's choice of this word indicates that it desired to establish a binding commitment through the 1995 enactment that is now Section The Contract Clause. The Contract Clause to the U.S. Constitution played a Significant role in our country's early history to establish the stability and predictability of our legal and economic systems, and it continues to have life as an important provision that prevents states from unilaterally altering their contractual obligations. Among the many early cases that confirmed the importance of the Contract Clause are Fletcher v. Peck, 10 u.s. (6 Cranch) 87 (1810)(rejecting the attempt of the Georgia legislature to reverse a land conveyance made by the previous corrupt legislature); New Jersey v. Wilson, 11 U.S. (7 Cranch) 165 (1812) (nullifying the attempt of the New Jersey legislature to reverse a commitment made to an Indian tribe); and Trustees of 3

4 Dartmouth College v. Woodward, 17 u.s. 518 (1819)(declaring unconstitutional the effort of the New Hampshire legislature to materially alter the charter of Dartmouth College). The most important recent case is United States Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977), which ruled that the states of New York and New Jersey were barred by the Contract Clause from using revenues generated by the New York Port Authority to develop a rapid transit system because the states had previously, by contract with bondholders, agreed not to use the revenues for these purposes. Of particular importance for the present discussion was the U.s. Supreme Court's use of a stricter standard of review for contracts in which the state itself is a party. Because a state will frequently be tempted to wiggle out of its contractual obligations, the Court felt it had to be rigorous in its enforcement of such agreements. Did Section Create A Contractual Obligation? Section was enacted in 1995 to resolve the continuing festering dispute between the University and the State Administration regarding the University's autonomy and fiscal integrity. It was thus an effort to settle an ongoing dispute by establishing a binding procedure that would remove the Legislature and the Governor from direct fiscal control over the University. The Legislature's goal was to establish a procedure whereby the University would have fiscal autonomy in order to strengthen the University and to encourage donors to contribute to the University. Based on this commitment, numerous persons acted in reliance to change their career plans to work or study at the University. Faculty members and administrators relocated to Hawai'i based on their understanding that our University would have autonomy and a sound fiscal base, and other faculty members and administrators who may have left were persuaded to stay. Students who may have attended other universities chose to enroll at our University because of the Legislature's commitment. Perhaps even more important is the impact on donors. One clear purpose of the 1995 legislation was to encourage private donations. Few private donors will contribute to our University if their private donations will be offset by reductions in general fund appropriations. The firm commitment found in Section is thus crucial to encouraging and obtaining private donations. Because Section was enacted to settle a longstanding dispute, and because faculty, administrators, students, and donors acted in reliance on this contractual commitment, this statute must be viewed as a contract governed by the Contract Clause. A lawsuit filed by any or all of these groups, or by the Regents of the University, would be successful in requiring the Governor to fund the University according to the mandate of Section

5 What Is the Legal Status of the University of Hawai" i? Article X, Sections 5-6 of Hawaii r s Constitution establish the University of Hawai"i as "a body corporate U and give the Board of Regents "exclusive jurisdiction over the internal organization and management of the university. II The Attorney General has previously ruled that the University is a "constitutionally independent corporation" and is thus not governed by the same rules that govern other administrative and executive agencies. Att. Gen. Ope It seems clear, therefore, that the University, or its Regents, would have standing to bring an action for damages against the State or the Governor, just as the Office of Hawaiian Affairs and the Board of Education have. Although the defense of sovereign immunity would undoubtedly be raised, it should not apply to a dispute such as this one brought by one element of the State against another to seek a fundamental interpretation of the State Constitution and governing statutes. Can the University Hire Its Own Attorney? The final question is whether the University or its Regents can hire their own attorney to bring this type of legal action. H.R.S. section 103D- 209(b) says that no "department, board, commission, agency, bureau, or officer of the State" can expend public funds to hire an attorney (with listed exceptions not applicable here). The question turns, therefore, on whether the University is a "department, board, commission, agency, bureau, or officer of the State." The answer to this question appears to be NO, based both on (1) Attorney General Opinion which says that the University is a "constitutional independent corporation" and is not governed by the same rules that apply to other administrative or executive agencies of the State and (2) the language in Article X Section 6 of the Hawai"i Constitution which says that the Board of Regents "shall have exclusive jurisdiction over the internal organization and management of the university." Attorney General Opinion responds to the question whether the President of the University must meet the three-year residency requirement that then applied to heads of the principal departments of the State government. Attorney General Shiro Kashiwa began his opinion by saying "That the University is an agency of the State Government admits of no argument." He then, however, looked more closely at the constitutional and statutory framework and recognized that the State Constitution had created the University as "a constitutional corporation of independent authority.. a body corporate with power to govern itself through a board of regents... a separate entity independent of the executive branch of the government. rr Because of the Uni versi ty r S independence, it was free to select its President without adhering to the requirements that applied generally to State departments that were part of the executive branch. Applying this reasoning to the present situation, it follows 5

6 z that the University must be free to select its own attorney when condi tions warrant. If it can select its President without adhering to a provision that the State Constitution required for heads of executive departments, then it must also be free to hire its own attorney in spite of the requirement (in H.R.S. 103D-209) that applies to State departments. This result is strengthened by the language that was added to the State Constitution after the 1978 Con Con and is now part of Article X, Section 6, which states explicitly that the Board of Regents "shall have exclusive jurisdiction over the internal organization and management of the university. II What can "exclusive jurisdiction" mean other than that the Regents are empowered to decide what employees are needed and for what purposes? If the Regents decide that the University or its administrators need an independent attorney, then their power to exercise "exclusive jurisdiction" over the "internal organization and management of the university" certainly allows them to hire one. SUMMARY AND CONCLUSION. A conflict exists between the Legislature and the Governor regarding the proper funding of the University. When such a conflict exists, duly enacted statutes must prevail over the wishes or actions of the Governor, because the Governor does not have law-making power. The Governor was within his power when he vetoed H.B this year, but he has no unilateral power to nullify Section , which remains as an operative statute that the Governor is obliged to execute faithfully. This statute is unambiguous in describing how the University of Hawai'i is to be funded. Section constitutes a contractual commitment made by the State of Hawai'i, which has been relied upon to their detriment by faculty, administrators, students, and donors. The Contract Clause of the U.S. Constitution, and fundamental notions of due process and fairness, require state governments to adhere to their contractual commitments. It is a violation of these fundamental constitutional principles for the State to renounce unilaterally its contractual responsibilities. Because of the failure to follow the requirements of Section , which constitutes a breach of contract, faculty, administrators, students, donors, the University itself, and the Regents would have standing to bring an action in federal court to enforce the contract and require adherence to the statute. Because the University is a constitutionally-created independent corporate body, it is constitutionally entitled to hire its own attorney to advise and represent it in this process. Please let me know if I can provide any further assistance on this matter. 6

7 .. t '! Sincerely yours, ~ (}fm,.1tkl- Jon M. Van Dyke Professor of Law 7