Advisory Opinion No. 2014-30

Rhode Island Ethics Commission 

Advisory Opinion No. 2014-30

Approved: November 18, 2014

Re:  Retirement Board of the Employees’ Retirement System of the State of Rhode Island 

QUESTION PRESENTED:

The Petitioner, the Retirement Board of the Employees' Retirement System of the State of Rhode Island, by a unanimous vote of its members, has requested an advisory opinion concerning whether those of its members who are required to recuse from the Retirement Board’s discussions and decision-making relating to pending pension reform litigation must similarly recuse from participation in the Retirement Board’s approval of a proposed budget that includes funding for the Retirement Board’s legal defense in said litigation.

RESPONSE:

It is the opinion of the Rhode Island Ethics Commission that the Code of Ethics requires those members of the Retirement Board of the Employees’ Retirement System of the State of Rhode Island who hold leadership positions in an organization that initiated litigation against the Retirement Board to recuse from participation in the Retirement Board’s approval of a proposed budget that includes funding for the Retirement Board’s legal defense in said litigation.

The Petitioners are the members of the Retirement Board of the Employees' Retirement System of the State of Rhode Island ("Retirement Board"). The Employees' Retirement System of the State of Rhode Island ("ERSRI") was statutorily established "for the purpose of providing retirement allowances for employees of the State of Rhode Island . . . ."  R.I. Gen. Laws § 36-8-2.  The Municipal Employees' Retirement System of the State of Rhode Island ("MERS") was similarly established "for the purpose of providing retirement allowances for employees of participating municipalities . . . and benefits to the survivors of those employees."  R.I. Gen. Laws § 45-21-32.  Together, the ERSRI and the MERS are commonly referred to as the "retirement system," which is managed by the Retirement Board.

The Retirement Board is an independent board, created and established in the office of the General Treasurer, to "hold and administer, in trust, the funds of the retirement system . . . [and] to perform such functions as authorized by law." Section 36-8-4.  The "general administration and the responsibility for the proper operation of the retirement system . . . are . . . vested in [the] retirement board."  Section 36-8-3.

In 2009 and 2010, the Rhode Island General Assembly enacted certain amendments to the state retirement system that were intended to strengthen the system and lower the state's required contributions, but which resulted in somewhat diminished retirement benefits for many participants.  Following these amendments, several statewide labor organizations filed suit in Superior Court ("the 2010 litigation") against the Governor, the General Treasurer and the ERSRI, by and through the Retirement Board, seeking to obtain a declaratory judgment that the 2009 and 2010 legislation violated the Contracts and Takings Clauses of the Rhode Island Constitution, to enjoin the state from implementing the amendments, and to recover the costs of the lawsuit.  The 2010 litigation is presently pending before the Superior Court.

In 2011, the General Assembly enacted the Rhode Island Retirement Security Act of 2011 ("RIRSA"), which also contained a number of changes to the state retirement system that, like the prior amendments, were intended to strengthen the system and lower the state's required contributions, but which resulted in somewhat diminished retirement benefits for many participants.  Following the RIRSA's enactment, several lawsuits were filed in Superior Court ("the 2012 litigation") by statewide labor organizations, their local affiliates and associations of retired public employees against the Governor, the General Treasurer and the ERSRI, by and through the Retirement Board.  Similar to the 2010 litigation, the plaintiffs in the 2012 litigation sought to obtain a declaratory judgment that the RIRSA violated the Contracts, Takings and Due Process Clauses of the Rhode Island Constitution, to enjoin the state from implementing the Act, and to recover the costs of the lawsuits.  The 2012 litigation is also presently pending before the Superior Court.

All of the named defendants in the 2010 litigation, including the ERSRI by and through the Retirement Board, are primarily represented by a single law firm hired as “special counsel,” who is paid with funds budgeted to the retirement system and the Department of Attorney General.  That same special counsel also represents the ERSRI in the 2012 litigation.  Because of the overlap of legal issues and parties, the 2010 and 2012 litigation has been effectively consolidated for some purposes such as mediation and discovery.  Reference to the “pension litigation” in this opinion refers to both the 2010 and 2012 litigation.

In 2013, while the pension litigation was undergoing court ordered mediation, the Retirement Board sought an advisory opinion from the Ethics Commission concerning whether certain members of the Retirement Board who had affiliations with some of the plaintiff organizations were prohibited by the Code of Ethics from participating in discussions and decision-making relative to the pension litigation and mediation.  In Advisory Opinion 2013-14, the Ethics Commission opined that those members of the Retirement Board who held leadership positions in any of the plaintiff organizations[1] were required to recuse from matters relating to the pension litigation.  Examples of Retirement Board matters requiring recusal included “discussions and direction to legal counsel regarding settlement options, tactics, strategy and other matters that are confidential and/or privileged and that may impact the outcome of the 2010 and 2012 litigation.”

For Fiscal Year (“FY”) 2015, while the litigation was in mediation, the Retirement Board budget included $128,000 for payment of special counsel.  With the failure of court ordered mediation in April 2014, the parties are now preparing for trial.  Accordingly, the Retirement Board’s preliminary budget proposal for FY 2016 estimated the amount of $1,005,000 in expenses for special counsel.  The Retirement Board considered its FY 2016 proposed budget, including expenses for special counsel, at a meeting on October 8, 2014.  Consistent with past practice, the budget was presented in its entirety for consideration.  Discussion ensued regarding the proposed budget allocation for special counsel to defend the Retirement Board in the pending litigation.  According to the Retirement Board in its letter requesting this advisory opinion, this discussion on the budget included questions concerning whether the Retirement Board is responsible to pay for litigation costs, and whether the litigation should be defended at all.

Recognizing that the Retirement Board’s budget discussion may be moving into matters that could impact the pension litigation, members queried whether a 2013 advisory opinion from the Ethics Commission to the Retirement Board applied to require the recusal of board members who were affiliated with the plaintiff organizations.  Ultimately, the Retirement Board voted unanimously to continue its budget discussion to a future meeting while seeking further guidance from the Ethics Commission as to the scope of the prior advisory opinion and whether it applies to the instant budget hearings. 

In Advisory Opinion 2013-14, issued to the Retirement Board, we stated that seven (7) Retirement Board members were “business associates” of one or more of the plaintiff organizations that initiated and were parties to the pension litigation.  Referring to Rhode Island General Laws §§ 36-14-5(a) and 5(d) of the Code of Ethics, we noted that public officials are not permitted to take an official action or to use their public office in any way that is likely to financially impact their business associates.  Applying that analysis, the Ethics Commission opined that the seven (7) members were prohibited by the Code of Ethics from participating in, and must recuse from, any Pension Board matters relating to the litigation.  This opinion relied on, and was consistent with, several prior advisory opinions.  See A.O. 2002-3 (members of the Jamestown Harbor Management Commission (“HMC”), who were part of a small grassroots organization that filed suit against the Town of Jamestown to challenge the legality of its mooring fees, must recuse from participation in HMC matters relating to the litigation).  See also A.O. 2012-8 (Charlestown Town Council member, who was the plaintiff in a wrongful termination lawsuit against the Town, was required to recuse from any Council matters pertaining to her lawsuit); A.O. 2010-59 (Tiverton Town Council member was prohibited from participating in any Town Council discussions or decisions involving any litigation in which he or his spouse was currently a party); A.O. 95-37 (Westerly Town Council member required to recuse from participation in any Council matter that affected her pending litigation against the Town).

While Advisory Opinion 2013-14 clearly indicated that the seven (7) Pension Board members must recuse from “matters relating to the 2010 and 2012 litigation[,]” including discussions of “strategy and other matters that are confidential and/or privileged and that may impact the outcome of the 2010 and 2012 litigation[,]” we did not specifically discuss participation in budget matters.  Nevertheless, we have in the past indicated that the Code of Ethics may require a public official to recuse from participating in a budget discussion or vote that is likely to impact litigation that involves the official. 

For example, in Advisory Opinion 1995-37, a member of the Westerly Town Council sought advice concerning whether she could participate in the Town Council’s hearings over a proposed Town budget in light of the fact that she had initiated and was involved in ongoing litigation against the Town regarding her property tax assessment.  Based on the petitioner’s representation that nothing within the proposed Town budget pertained to the litigation, the Ethics Commission opined that the petitioner was not prohibited from participating in discussions and voting relative to the budget, including the legal services budget.  The Commission cautioned, however, that the petitioner would be required to recuse from participating in any future budget matters that affected the pending litigation.  More recently, in Advisory Opinion 2010-58, a newly elected member of the Providence City Council inquired as to whether he could continue his ongoing legal representation of the Providence Water Supply Board (“PWSB”), which is under the fiscal and jurisdictional control of the City Council, in a personal injury case filed against the PWSB and the City (represented by the City Solicitor).  The Ethics Commission opined that the petitioner could continue to represent the PWSB based on his agreement to recuse from participating in: (1) the Council's review and approval of the PWSB budget; (2) the Council's election of PWSB members; (3) any general Council oversight of the PWSB; and (4) any Council discussions and voting concerning the appointment or re-appointment of the Solicitor.

In the instant request for an advisory opinion, the Retirement Board indicates that the budget discussions that precipitated this inquiry involved voting on the budget in ways that would directly impact the defense and outcome of the pension litigation.  Clearly, such discussion falls within our direction in Advisory Opinion 2013-14 to “recuse from matters relating to the 2010 and 2012 litigation.”  Accordingly, it is the opinion of the Ethics Commission that any Retirement Board members who hold leadership positions in an organization that is a plaintiff in the pension litigation are required to recuse from the board’s budget discussions and voting that relate to, or impact, the pension litigation.  This would very clearly apply to, but not necessarily be limited to, any discussion or voting relative to the budget’s pension litigation line item.  Members’ notices of recusal must be filed with the Ethics Commission pursuant to section 36-14-6.

In its letter to the Ethics Commission seeking the instant opinion, legal counsel to the Retirement Board has proposed that the Board divide the budget into two votes:  (1) a vote on only the pension litigation line item by those members who are not required to recuse; and (2) a vote on the remainder of the FY 2016 budget by all members.  We approve of this procedure, and find that it is consistent with the Code of Ethics and with our advice in this and the prior advisory opinion to the Retirement Board.

This Advisory Opinion is strictly limited to the facts stated herein and relates only to the application of the Rhode Island Code of Ethics.  Under the Code of Ethics, advisory opinions are based on the representations made by, or on behalf of, a public official or employee and are not adversarial or investigative proceedings.  Finally, this Commission offers no opinion on the effect that any other statute, regulation, ordinance, constitutional provision, charter provision, or canon of professional ethics may have on this situation. 

Code Citations:

§ 36-14-5(a)
§ 36-14-5(d)

§ 36-14-6
§ 36-14-7(a)
§ 36-14-7(b)

Other R.I. Gen. Laws

§ 36-8-2

§ 36-8-3

§ 36-8-4

§ 36-8-4.1

§ 45-21-32

Related Advisory Opinions:

A.O. 2013-14

A.O. 2012-8

A.O. 2010-59

A.O. 2010-58

A.O. 2002-3

A.O. 1995-37

Keywords: 

Business Associate

Pension Benefits

Unions/Bargaining Units