Case Summary

On April 20, 2012, Twenty-Six (26) North Carolina State retirees brought a civil action in Gaston County, North Carolina to restore their contractually and constitutionally guaranteed retirement health benefits.  On September 2, 2016 the Honorable Judge Edwin Wilson certified the Case as a class action, meaning there are now approximately 222,000 plaintiffs (“Plaintiff Class”).  The Plaintiff Class includes all state retirees who vested in retirement health benefits and certain surviving spouses.  The Plaintiff Class includes only those people who participate in the Teachers’ and State Employees’ Retirement System of North Carolina.

The lawsuit is captioned as I. Beverly Lake, et al. v. State Health Plan for Teachers and State Employees, et al. (Gaston: 12-CVS-1547).  The law firm of Gray, Layton, Kersh, Solomon, Furr, & Smith, P.A. serves as lead counsel for the Plaintiffs along with attorneys Gary M. Jackson of the Law Offices of James Scott Farrin and Sam McGee of Tin Fulton Walker & Owen, PLLC.  The State of North Carolina’s Attorney General, Josh Stein, and his staff represent the Defendants.

The named Plaintiffs are retired State employees who were formerly employed in a wide range of positions within the North Carolina state government, including members of the judiciary (including a former Chief Justice of the North Carolina Supreme Court and a former North Carolina Court of Appeals Judge), presidents and superintendents of community colleges and local school systems, teachers, law enforcement personnel and administrators.

The suit specifically seeks the restoration of a non-contributory 80/20 retirement health insurance benefit, as well as a partially contributory 90/10 retirement health insurance benefit option.  The suit contends that the State is contractually obligated to provide these benefits, and constitutionally prohibited from reneging on the prior contract with the now retired employees. The State had long ago promised its employees that in exchange for working for the State for a term of years they would receive these health insurance benefits following retirement. In April of 2009, the North Carolina General Assembly passed Session Law 2009-16 that eliminated the optional 90/10 health insurance plan.  In May of 2011, the North Carolina General Assembly passed Session Laws 2011-85 and 2011-96, which required retirees to pay a premium to receive the promised 80/20 plan.  These recent changes to the retirement health plan benefits were in breach of the State’s contracts with the vested retirees.

We recommend that you access the Timeline for an overview of case activity, court decisions, and currently anticipated next steps.  In September of 2016, the parties both filed cross-motions for summary judgment and Judge Wilson held a hearing on those motions on November 14, 2016.  At the hearing, the Defendants argued that the Plaintiff Class has no contractual rights to any retirement health benefits.  The Plaintiffs contend that the retirement health benefits are contractual (being part of the overall compensation and retirement benefit package of the Class) and protected from unilateral retroactive reductions.  The Court considered both parties contentions and took the matter under advisement.

In addition to court filings, discovery has been exchanged by the parties resulting in Defendants’ production of over one million pages of documents and the taking of nearly 40 depositions.  Through the course of discovery in this case, in addition to the named Plaintiffs, depositions of the following witnesses and representatives associated with the Defendants were taken.  Joann Tart (“Tart”), Glen Wall (“Wall”), Karen Jarvis (“Jarvis”) and Kathy Spruill (“Spruill”) are all former Benefits Counselors for the Retirement System.  Mona Moon (“Moon”) is the Executive Director of the North Carolina State Health Plan and served as the State Health Plan’s 30(b)(6) deponent.  Lotta Crabtree (“Crabtree”) is the Deputy Director for the State Health Plan.  Mark Trogdon (“Trogdon”) is the Director of the Fiscal Research Division of the North Carolina General Assembly.  David Vanderweide (“Vanderweide”) is a pension actuarial analyst with the Fiscal Research Division of the North Carolina General Assembly.  Janet Cowell (“Cowell”) is the elected North Carolina State Treasurer, a named Defendant, and is a member of the Council of State.  Thomas Causey (“Causey”) is the Deputy Director of Operations of and served as the 30(b)(6) deponent for the Retirement System.  Ken Vieira (“Vieira”) and Kirsten Schatten (“Schatten”) are actuaries for Segal Consulting (they were formerly with Aon Consulting), who serve as actuaries to the State Health Plan.  Susan Murray (“Murray”) was the 30(b)(6) deponent for Blue Cross Blue Shield of North Carolina.

On May 19, 2017, the Court entered an Order granting the Plaintiffs’ Motion for Partial Summary Judgment and Denying the Defendants’ Motion for Summary Judgment.  In that Summary Judgment Order, the Court found that the retirement health benefits were contractual in nature and protected from retroactive reduction under both the State and Federal Constitutions.  The Order required the State by way of injunction and writ to provide the 80/20 health benefits premium-free for the duration of all class members’ retirements.  The Order also found that the Class had incurred damages in the form of premiums paid for the 80/20 plans from 2011-2016.  The Order requires the State to calculate those damages for each class member, subject to an audit process, and provide the calculations to Class Counsel for review and inclusion in a future order.  The injunctive relief and payment of damages is stayed pending any appeal by the Defendants.

On June 2, 2017, the Defendants filed a Notice of Appeal of the Summary Judgment Order. Following the Notice of Appeal, the parties compiled and filed the Record on Appeal, which constitutes of several thousand pages of documents pertaining to the litigation. After filing the Record on Appeal, both Plaintiffs and Defendants filed a Petition before the State Supreme Court to have the appeal heard at the Supreme Court first and without waiting for an adjudication before the Court of Appeals (what is called a ‘bypass PDR’). The Supreme Court deferred making a ruling on the bypass PDR because the Court did not have a quorum to hear the case. The Supreme Court indicated that if they subsequently have a quorum to hear the case, they will revisit the bypass PDR. The Court of Appeals heard oral arguments on November 29, 2018 in Raleigh, North Carolina at 9:30 am at the Court of Appeals building at One West Morgan Street, Raleigh, NC.  On March 25, 2019, the Court of Appeals panel issued an opinion that overturned the trial court’s Summary Judgment Order.

Plaintiffs appealed the decision to the North Carolina Supreme Court, who granted Plaintiff’s Petition for Discretionary Review agreeing to hear the appeal. The North Carolina Supreme Court held oral arguments on Monday, October 4, 2021 at approximately 3:00 pm.  Sam McGee of Tin Fulton Walker & Owen, PLLC and Michael Carpenter of Gray, Layton, Kersh, Solomon, Furr & Smith, P.A. presented oral arguments on behalf of the Plaintiffs.  Solicitor General Ryan Park of the North Carolina’s Attorney General’s office presented arguments on behalf of the Defendants.

The oral arguments can be viewed at:

https://www.youtube.com/channel/UCWo6zIpwtve9U-ynsAS7GfQ

On March 11, 2022, the NC Supreme Court issued its opinion holding that eligible State employees have a contractually vested right in a noncontributory health plan for life, equivalent to the plan in place when a class member’s rights vested.  The NC Supreme Court remanded the case to the trial court to determine whether the Defendants’ post-2011 actions substantially impaired this contractual right, and if so, the resulting damages.Further proceedings in the trial court (before Judge Edwin Wilson) will resume after the remand is finalized.