SUPREME COURT OF ARIZONA
En Banc
KENNETH J. PROKSA AND DENNIS P. ) Arizona Supreme Court
RUSSELL, ) No. CV-02-0388-CQ
)
Plaintiffs, ) United States District
) Court
v. ) No. CIV 02-412-TUC-WDB
)
ARIZONA STATE SCHOOLS FOR THE )
DEAF AND THE BLIND, a state )
created school and public )
corporation; STATE OF ARIZONA, a ) O P I N I O N
body politic and state )
government; MARCIA SMITH, JOANNE )
TRIPI, JANE N. ERIN, GAIL HARRIS, )
JAMES A. WHITEHILL, and THOMAS J. )
POSEDLY, each officially as a )
member of the Board of Directors )
of ASDB and individually; and )
KENNETH D. RANDALL, officially )
as the Superintendent of ASDB and )
individually; JOHN DOES 1-10; )
JANE DOES 1-10; ABC PROPRIETOR- )
SHIPS and PARTNERSHIPS 1-10; and )
XYZ LIMITED LIABILITY COMPANIES )
and CORPORATIONS 1-10, )
)
Defendants. )
__________________________________)
Certified Questions from the
United States District Court for the District of Arizona
The Honorable William D. Browning, Judge
QUESTIONS ANSWERED
_
LAWRENCE E. CONDIT Tucson
Attorney for Plaintiffs
TERRY GODDARD, ARIZONA ATTORNEY GENERAL Phoenix
By Michael K. Goodwin, Assistant Attorney General,
Employment Law Section
Attorneys for Defendants
__ __
H U R W I T Z, Justice
¶1 Kenneth Proksa and Dennis Russell were long-time
employees of the Arizona State Schools for the Deaf and Blind
(the “Schools”). After their employment was terminated in 2002,
Proksa and Russell filed suit in superior court against the
Schools, the State of Arizona, and others, alleging that they
had been wrongfully terminated. Defendants removed the suit to
federal court.
¶2 On November 18, 2002, United States District Judge
William D. Browning certified two questions of Arizona law to
this court. See Ariz. Rev. Stat. (“A.R.S.”) §§ 12-1861 to -1867
(2002) (Uniform Certification of Questions of Law Act). We
accepted jurisdiction to answer the certified questions on
January 7, 2003, see Ariz. R. Sup. Ct. 27(b), and today address
those questions.
I.
¶3 The facts relevant to the disposition of the certified
questions are set forth in the district court’s certification
order and may be quickly summarized. Kenneth Proksa was hired
by the Schools in 1981, and Dennis Russell in 1987. Prior to
1993, A.R.S. § 15-1326(B) (1986) provided that, after
successfully completing a term of probation, all employees of
the Schools “shall be granted permanent employment status.” The
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statute also provided that a permanent employee could only be
discharged “for cause” and that “[p]ermanent employees
discharged from employment at the Schools are entitled to due
process protections in the manner provided by the board.”
A.R.S. § 15-1326(C) (1986). See Deuel v. Ariz. State Sch. for
the Deaf and Blind, 165 Ariz. 524, 526-27, 799 P.2d 865, 867-68
(App. 1990) (holding that terminated permanent employee is
entitled to various due process protections at post-termination
hearing).
¶4 In 1993, in response to a series of recommendations
from the auditor general and the staff of the joint legislative
budget committee, the legislature adopted a sweeping amendment
of the statutes governing the Schools. 1993 Ariz. Sess. Laws,
ch. 204. The amended statutes required the Schools to designate
certain positions as “management and supervisory.” A.R.S. § 15-
1325(A) (2002). The superintendent of the Schools was then
required to issue “one, two or three year contracts” for these
positions. The Schools would then decide, upon the expiration
of each contract, whether to issue the employee a new contract.
A.R.S. § 15-1325(D). “Management and supervisory” employees
were exempted under the new statute from the requirement in §
15-1326(B) that all employees completing probation be granted
“permanent” status. A.R.S. § 15-1326(B).
3
¶5 Proksa and Russell were classified as “management”
personnel in 1993, and, under the new statute, were offered one-
year employment contracts. See 1993 Ariz. Sess. Laws, ch. 204,
§ 17(2) (governing initial offer of employment contract to
person in supervisory or management position). These contracts
were renewed annually pursuant to A.R.S. § 15-1325(D) until
2002. In April 2002, the Schools notified Proksa and Russell
that their contracts would not be renewed. See A.R.S. § 15-
1325(E) (governing notices of non-renewal).
¶6 Proksa and Russell then filed suit in superior court,
raising claims of wrongful termination, age discrimination, and
intentional infliction of emotional distress. They also brought
claims under 42 U.S.C. § 1983 (2002), alleging unlawful
deprivation of their property interest in employment. Citing
federal question jurisdiction, the defendants then removed the
case to federal court.
¶7 Proksa and Russell filed a motion to remand the case
to state court. Judge Browning denied that motion and instead
certified the following two questions of law to this court:
1. May the Arizona Legislature statutorily change the
terms of a “permanent” employee’s employment without
providing for offer, acceptance or assent, and
consideration?
2. Did Plaintiffs’ acceptance of the yearly contracts
between 1993 and 2001 effect an assent to the
modification of the terms of their employment that
required no additional consideration?
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¶8 We have jurisdiction over these certified questions
pursuant to Article 6, Section 5(6) of the Arizona Constitution,
A.R.S. §§ 12-1861 to -1867, and Supreme Court Rule 27. For the
reasons below, we answer the first certified question in the
affirmative and thus find it unnecessary to reach the second
question.
II.
¶9 The first certified question sounds in contract.
Plaintiffs begin from the premise that, under Arizona law, the
“employment relationship is contractual in nature,” A.R.S. § 23-
1501(1) (Supp. 2002), and that an employer may not unilaterally
modify an employment contract without an offer, assent or
acceptance, and consideration. See Demasse v. ITT Corp., 194
Ariz. 500, 506 ¶ 18, 984 P.2d 1138, 1144 (1999). Plaintiffs
contend that after successfully completing their periods of
probation, they each effectively entered into employment
contracts with the Schools providing that they could not be
discharged without cause, and that the 1993 amendments to A.R.S.
§§ 15-1325 and -1326 could therefore not be applied to them
without their assent or acceptance and consideration.
¶10 We do not quarrel with the premise that the employment
relationship is contractual, and that employment contracts, like
others, may not be unilaterally modified. But the critical
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issue in this case is not whether there was a contract of
employment, but rather whether one provision of that contract
was that Proksa and Russell were permanent employees. Proksa
and Russell claim that the pre-1993 version of A.R.S. § 15-1326
created such a contract right.
¶11 The general principle, however, is that statutes do
not create contract rights. See Nat’l R.R. Passenger Corp. v.
Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66 (1985)
(“[A]bsent some clear indication that the legislature intends to
bind itself contractually, the presumption is that ‘a law is not
intended to create private contractual or vested rights but
merely declares a policy to be pursued until the legislature
shall ordain otherwise.’”) (quoting Dodge v. Bd. of Educ., 302
U.S. 74, 79 (1937)); US West Communications, Inc. v. Ariz. Corp.
Comm’n, 197 Ariz. 16, 22 ¶ 19, 3 P.3d 936, 942 (App. 1999)
(“Courts are reluctant to find that statutes create private
contractual rights.”). This is because the primary function of
a legislature “is not to make contracts, but to make laws that
establish the policy of the state.” Nat’l R.R. Passenger Corp.,
470 U.S. at 466. Policies, unlike contracts, are “inherently
subject to revision and repeal.” Id.
¶12 The presumption that statutes do not create
contractual rights serves an important public purpose. “To
treat statutes as contracts would enormously curtail the
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operation of democratic government. Statutes would be ratchets,
creating rights that could never be retracted or even modified
without buying off the groups upon which the rights had been
conferred.” Pittman v. Chicago Bd. of Educ., 64 F.3d 1098, 1104
(7th Cir. 1995). If statutes were routinely treated as
establishing contractual rights, the legislature might well be
discouraged from addressing pressing public needs, for fear that
any law could not thereafter be modified without the consent of
those for whose benefit it was passed. See Nat’l R.R. Passenger
Corp., 470 U.S. at 466 (“[T]o construe laws as contracts when
the obligation is not clearly and unequivocally expressed would
be to limit drastically the essential powers of a legislative
body.”).
¶13 The well-established presumption that statutes do not
create contract rights has repeatedly been applied by courts in
other jurisdictions to laws governing public employee tenure.
For example, the Seventh Circuit has held that the Illinois
legislature can amend a statute providing for tenure for public
school principals to instead provide that principals serve at
the pleasure of local school boards. See Pittman, 64 F.3d at
1104 (noting that tenure for school principals is “not a term in
a contract,” but “a term in a statute, and a statute is presumed
not to create contractual rights”). Similarly, the Wisconsin
Supreme Court has held that its legislature could
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constitutionally amend a law providing for tenure for public
school teachers to require retirement at age sixty-five.
Morrison v. Bd. of Educ., 297 N.W. 383, 385 (Wis. 1941) (holding
that while an act may fix the term or tenure of a public
employee, “[t]he presumption is that such a law is not intended
to create private contractual or vested rights, but merely
declares a policy to be pursued until the Legislature shall
ordain otherwise”). The case law thus rejects the general
notion that statutes create a contractual right to tenure in
office, and instead adopts the rule that “[t]enure is regulated
by legislative policy.” Wash. Fed’n of State Employees v.
Washington, 682 P.2d 869, 872 (Wash. 1984).
¶14 Our decisions make plain that “[n]o person has a
vested right to any public office or position except as provided
by law, and if a competent authority abolishes the position for
a legitimate reason, the holder thereof has no remedy because he
has necessarily lost the position and the salary which goes with
it.” Donaldson v. Sisk, 57 Ariz. 318, 327-28, 113 P.2d 860, 864
(1941). The legislature has the unquestioned right to create
and abolish offices in the public interest, and that right
“necessarily includes the power to fix or alter the term, the
mode of appointment and compensation.” Ahearn v. Bailey, 104
Ariz. 250, 253, 451 P.2d 30, 33 (1969) (citing Barrows v.
Garvey, 67 Ariz. 202, 193 P.2d 913 (1948)). These statements,
8
while not directly addressing the question certified to us
today, are inconsistent with the plaintiffs’ assertion that
statutes governing public employment generally create
enforceable contract rights.
¶15 The legislature, of course, does have the power to
pass laws that establish contractual rights. But the case law
makes clear that statutes will not be interpreted as contracts
without an “adequate expression of an actual intent of the State
to bind itself.” See Nat’l R.R. Passenger Corp., 470 U.S. at
466-67 (quoting Wis. & Mich. Ry. Co. v. Powers, 191 U.S. 379,
386-87 (1903)). Plaintiffs have cited no evidence that the
legislature intended to enter into a contract by enacting the
pre-1993 version of A.R.S. § 15-1326, and we find nothing in the
prior version of the statute that expresses such intent. See US
West, 197 Ariz. at 22 ¶¶ 19-22, 3 P.3d at 942 (finding that laws
governing telephone service do not evidence intent to enter into
regulatory contract with provider).
III.
¶16 In arguing that the prior version of A.R.S. § 15-1326
established a contract between the State and those classified as
“permanent” employees of the Schools, Proksa and Russell rely
heavily on Yeazell v. Copins, 98 Ariz. 109, 402 P.2d 541 (1965),
and various of its progeny, including Norton v. Arizona
Department of Public Safety Local Retirement Board, 150 Ariz.
9
303, 723 P.2d 652 (1986), and Thurston v. Judges’ Retirement
Plan, 179 Ariz. 49, 876 P.2d 545 (1994). These cases adopted
what we have characterized as “the contract theory of retirement
benefits.” Norton, 150 Ariz. at 306, 723 P.2d at 655. Under
that theory, the State’s promise to pay retirement benefits is
part of its contract with the employee; by accepting the job and
continuing work, the employee has accepted the State’s offer of
retirement benefits, and the State may not impair or abrogate
that contract without offering consideration and obtaining the
consent of the employee. See Yeazell, 98 Ariz. at 113-117, 402
P.2d at 544-547.
¶17 Proksa and Russell rely on the broad language of
Yeazell to support their argument that, by accepting employment
with the Schools and continuing to work past the probationary
period, they entered into a contract with the State that they
would be treated as permanent employees and discharged only for
cause. When read in isolation, Yeazell offers some support to
that argument. See id. at 113, 402 P.2d at 544 (“[T]he laws of
the state are a part of every contract . . . .”). Yeazell,
however, deals only with retirement benefits, and, for the
reasons below, we decline to extend its “contract” theory to the
statutes governing the tenure of school management and
supervisory personnel.
10
¶18 The issue in Yeazell was whether statutorily
established pension benefits could be modified by the
legislature. The majority rule at the time was that such
benefits could be modified because the employee had no vested
right in the pensions. This conclusion was based on the
prevalent characterization of pension benefits as mere
“gratuities,” granted at the benevolent will of the sovereign.
Id. at 112, 402 P.2d at 543. See Kraus v. Bd. of Trustees of
the Police Pension Fund, 390 N.E.2d 1281, 1284 (Ill. App. Ct.
1979) (reviewing cases establishing this “archaic” approach to
pension plans). As such, pension plans — like any statutory
entitlement — could be amended, changed, or repealed as the
legislature saw fit.
¶19 Treating retirement benefits as “gratuities,” however,
posed a particular problem in Arizona. As Yeazell recognized,
under the “Gift Clause” of the Arizona Constitution (art. 9, §
7), “[t]he state may not give away public property or funds; it
must receive a quid pro quo.” Yeazell, 98 Ariz. at 112, 402
P.2d at 543. Thus, this court noted, “the various retirement
acts for public employees in Arizona cannot be upheld unless the
state . . . enters into a legal obligation founded upon a
valuable consideration.” Id.
¶20 To validate the Arizona retirement acts, Yeazell
concluded, as had the Supreme Court of California in construing
11
its Gift Clause, that pensions were not gratuities, but were in
the nature of contracts, viewed as deferred compensation for
services rendered. Yeazell, 98 Ariz. at 113, 402 P.2d at 543-44
(citing O’Dea v. Cook, 169 P. 366 (Cal. 1917)); accord Bakenhus
v. City of Seattle, 296 P.2d 536 (Wash. 1956) (reaching
identical conclusion with respect to Washington retirement
statutes). Subsequent Arizona cases, including Norton and
Thurston, then applied this “contract theory” to particular
issues involving retirement benefits.
¶21 In short, Yeazell and its progeny concluded that
retirement benefits were intended as a contract between public
employees and the State largely because any other conclusion
would have resulted in the unconstitutionality of the entire
retirement system. See Yeazell, 98 Ariz. at 112, 402 P.2d at
543 (“It is plain that in this state pensions cannot be
sustained as constitutional unless anchored to a firmer basis
than that of a gift.”); see also State v. Soto-Fong, 187 Ariz.
186, 202, 928 P.2d 610, 626 (1996) (statutes should be
interpreted whenever possible in a fashion so as to preserve
their constitutionality). Thus, Yeazell and the public employee
pension benefit cases do not establish that all statutes
involving public employee benefits and tenure are contractual in
nature; rather, those cases represent an exception to the
general rule that statutes are not intended to create
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contractual terms. Put differently, in the retirement benefits
area, given the Gift Clause of our constitution, this court
effectively found an “adequate expression of an actual intent of
the State to bind itself,” Nat’l R.R. Passenger Corp., 470 U.S.
at 466-67, because any finding to the contrary would render the
statutes unconstitutional.
¶22 It is a far different matter, however, to conclude
that all statutes dealing with public employees constitute a
legislative contract with the employees. Other states that have
adopted the “contract theory” of retirement benefits have
rejected the assertion that all other statutes dealing with
public employees necessarily create similar contractual
obligations. See, e.g., Wash. Fed’n of State Employees, 682
P.2d at 872 (tenure is a term of employment regulated by
legislative policy and therefore is not based in contract,
unlike deferred benefits such as pensions); Tirapelle v. Davis,
26 Cal. Rptr. 2d 666 (Ct. App. 1993) (salary levels of state
employees are not contractual or otherwise vested). We agree,
and hold today that Yeazell and its progeny do not adopt a
general rule that statutes relating to public employees confer
contractual rights on those employees. As the Supreme Court of
Wisconsin concluded in a similar context, “[w]e see no reason
. . . why a separate and subsequent tenure act that presents no
internal evidences of being contractual in character should be
13
held to acquire such a character by reason of such contractual
elements as may be found in a previously enacted retirement
act.” Morrison, 297 N.W. at 387.
IV.
¶23 Proksa and Russell also argue at length that the pre-
1993 version of A.R.S. § 15-1326 gave them a property interest
in continued employment of which they could not constitutionally
be deprived without due process of law. Because we exercise
jurisdiction today only to address the state law questions
certified by the district court, this is not an occasion to
explore the federal constitutional doctrine of Board of Regents
v. Roth, 408 U.S. 564 (1972), and its progeny. In any event,
our discussion above resolves whether Proksa and Russell have an
existing property interest under Arizona law in continued
employment.
¶24 Whether a property interest exists is a matter of
state law. See Roth, 408 U.S. at 577; Brady v. Gebbie, 859 F.2d
1543, 1548 (9th Cir. 1988) (state law defines property
interests). It is of course true that, until 1993, Arizona
statutes created a property interest in continued employment for
permanent employees of the Schools that was protected by the Due
Process Clause, and thus could be terminated only after a
hearing establishing appropriate cause. See Deuel, 165 Ariz. at
526, 799 P.2d at 867. But it is also plainly true that current
14
law affords plaintiffs no such property interest. To the extent
that the certified question from the district court asks us
whether Proksa and Russell currently have a property interest in
continued employment by the State, we answer that question in
the negative.
¶25 Insofar as the district court’s first certified
question asks us whether the legislature had the power under
state law to change the status of plaintiffs’ tenure, the answer
is plainly that it could legally do so. Under Arizona law, the
legislature has the plenary authority to change a state
employee’s job classification. See Ahearn, 104 Ariz. at 253,
451 P.2d at 33 (legislature has the right to create or abolish
public positions, which right “necessarily includes the power to
fix or alter the term, the mode of appointment and
compensation”); see also Gattis v. Gravett, 806 F.2d 779, 781
(8th Cir. 1986) (“[T]he legislature which creates a property
interest may rescind it . . . whether the interest is an
entitlement to economic benefits, a statutory cause of action or
civil service job protections.”); accord Rea v. Matteucci, 121
F.3d 483 (9th Cir. 1997); McMurtray v. Holladay, 11 F.3d 499
(5th Cir. 1993); Packett v. Stenberg, 969 F.2d 721 (8th Cir.
1992); Goldsmith v. Mayor & City Council of Baltimore, 845 F.2d
61 (4th Cir. 1988); Conn. Judicial Selection Comm’n v. Larson,
745 F. Supp. 88 (D. Conn. 1989).
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V.
¶26 For the reasons above, we answer the first certified
question from the district court in the affirmative. Given our
answer to the first certified question, it is not necessary to
address the second certified question.
____
Andrew D. Hurwitz, Justice
CONCURRING:
_
Charles E. Jones, Chief Justice
_
Ruth V. McGregor, Vice Chief Justice
_
Rebecca White Berch, Justice
_
Michael D. Ryan, Justice
16