, 933 N.E.2d 212 (Ind. Ct. App. 2010), Case No. 49A02-0908-CV-718, a class action in which a class of state employees sued a class of state agencies for not properly paying that class of employees from 1973 to 1993. The case is newsworthy because it reduces a judgment for the employees in excess of $42 million by a fairly large amount. But this headline only scratches the surface of how much is contained within this opinion because of the scope of the topics it addresses. If the Indiana Supreme Court does not grant transfer, then it is possible that Indiana’s attorneys will be citing this case for years.
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Facts and Procedure
In order for all of the legal issues to be put into context, we will need to provide a substantial factual and procedural background.
From 1967 until 1993, the State of Indiana required some of its employees (those in "state institutions") to work 40 hours per week while other employees in the same job classification (in "state offices") were required to work only 37.5 hours per week for the same salary. The job classifications in which this occurred were referred to as "split classifications." Thus, the 40-hour-per-week employees in split classifications effectively received a lower hourly wage than their counterparts working 37.5 hours per week.
There are different categories of state employees, which are governed by different statutes and regulations. There are merit employees, who work at the merit agencies listed in
I.C. § 4-15-2-3.8, and non-merit employees. The merit and non-merit employees can be further divided into those who are eligible for overtime pay under federal labor laws and those who are not. Thus, there are four categories of Employees involved in this class action suit: (1) merit/overtime-eligible; (2) merit/overtime-exempt; (3) non-merit/overtime-eligible; and (4) non-merit/overtime-exempt.
In September 1993, the State Personnel Department ("SPD") abolished the split class system and issued a policy standardizing the computation of hourly rates for all state employees on the basis of a 37.5-hour work week in response to the decision in
Arden & Coulter v. State Employees’ Appeals Commission, 578 N.E.2d 769 (Ind. Ct. App. 1991).
Arden was not a class case and addressed two of the categories of state employees involved in
Brattain: merit/overtime-eligible employee and merit/overtime-exempt employees. It concluded that merit/overtime-eligible employees in a given classification working in state institutions and those of the same classification working in state offices were doing comparable work and, therefore, were entitled to equal pay. However, it concluded that merit/overtime-exempt employees in state institutions had no employees in state offices doing comparable work for 37.5 hours per week and, therefore, there was no need to reach the question of equal pay.
After
Arden was decided in September 1991, but before the State eliminated the pay disparity between employees in state offices and institutions in September 1993, this lawsuit was initiated on July 29, 1993, on behalf of both overtime-eligible and overtime-exempt merit employees. The State moved to dismiss the action, arguing that the plaintiffs, who were all merit Employees, had failed to exhaust their administrative remedies pursuant to the Administrative Orders and Procedures Act. The trial court denied the motion. In December 1997, the State moved for summary judgment, arguing that the merit Employees had failed to exhaust their administrative remedies and that Strong and other overtime-exempt employees were not entitled to relief under Arden. The trial court also denied this motion.
The Employees amended their complaint in 2002 to add non-merit employees and to name the class representatives for sub-classes of the 4 categories of employees. The trial court granted the motion for class certification. The State then filed a second motion for summary judgment, arguing that (1) there was no private right of action for damages under either the State Personnel Act or the Indiana Constitution; (2) the "equal pay for comparable work" provision in 31 IAC 2-4-2 did not apply to non-merit employees; and (3) pursuant to Arden, no overtime-exempt employees were entitled to additional pay. The trial court denies this motion.
The matter was tried to the court, which entered judgment for the employees. It concluded that the appropriate statute of limitations was a 20-year statute based on written contracts other than those for the payment of money entered before 1982 and entered judgment for all subclasses in an amount that totaled the above-mentioned amount of more than $42 million. The State appealed that judgment.
Exhaustion of Administrative Remedies
On appeal, the Court first addressed whether the complaint should have been dismissed for a failure to exhaust administrative remedies. The Employees admitted that they had not exhausted administrative remedies, but argued that they were not required to do so because any attempt would have been futile. In a footnote, the Court noted that there may have been some error in addressing this issue in the context of a motion for summary judgment.
We observe that the exhaustion of administrative remedies calls into question the trial court's subject matter jurisdiction.
Ind. Dep’t of Envtl. Mgmt. V. NJK Farms, Inc., 921 N.E.2d 834, 842 (Ind. Ct. App. 2010). Some case law suggests that the trial court should have decided this matter in its ruling on the State's motion to dismiss and that it was improper to use summary judgment.
See Perry v. Stitzer Buick GMC, Inc., 637 N.E.2d 1282, 1286 (Ind. 1994) (discussing differences between summary judgment and motion to dismiss for lack of subject matter jurisdiction: "Summary judgment terminates litigation predicated upon a finding that there are no material issues of fact that necessitate trial. … By contrast, a motion to dismiss for lack of subject matter jurisdiction presents a threshold question concerning the court‟s power to act.");
see also Brazauskas v. Fort Wayne-South Bend Diocese, Inc., 714 N.E.2d 253, 259 (Ind. Ct. App. 1999) ("[A]n attack on the court's subject-matter jurisdiction cannot form the basis of a motion for summary judgment."),
trans. denied.
The parties disputed who bore the burden of proof on this issue. The State argued that the Employees bore the burden of proof because the exhaustion of administrative remedies is an issue of subject matter jurisdiction. The Employees argued that failure to exhaust administrative remedies is an affirmative defense, for which the State had the burden to prove. The Court disagreed with both parties, preferring, instead, to impose a shifting burden of proof.
While we agree with the merit Employees that the State had the burden to prove that they failed to exhaust their administrative remedies, we conclude that the merit Employees bore the burden to prove that their administrative remedies would have been futile.
When reaching this conclusion, the Court was careful to distinguish a claim of lack of subject matter jurisdiction from a claim of procedural error.
Note that this dispute is not one regarding the distinction between a claim of lack of subject matter jurisdiction, which cannot be waived, from a claim of procedural error (referred to in the past as "jurisdiction over the particular case"), which can be waived.
See Packard v. Shoopman, 852 N.E.2d 927, 929-30 (Ind. 2006) (stating that statutory "jurisdictional" requirements that had previously been referred to as "jurisdiction over the particular case" do not implicate subject matter jurisdiction);
K.S. v. State, 849 N.E.2d 538, 541-42 (Ind. 2006) (explaining that claims of procedural error are frequently mischaracterized as claims of jurisdictional dimension). Our supreme court's decision in
Ind. Family & Soc. Serv. Admin. v. Meyer, 927 N.E.2d 367 (Ind. 2010), appears to leave unresolved the question of whether or not the failure to follow statutory requirements, which could arguably include exhausting administrative remedies, is more appropriately described as procedural error or lack of subject matter jurisdiction.
The Court then held that both parties had met their respective burdens of proof. In particular, the Employees had demonstrated that any attempt to exhaust administrative remedies would have been futile because the State's position, prior to
Arden, was that there was no relief to be had. Because the SPD's legal position on the pay disparity had already been established by the time the lawsuit was filed, it was fruitless to require that the Employees exhaust those remedies.
Class Certification
The Court next discussed whether the trial court erred in certifying the class. The Court spent the most time addressing whether there are questions of law or fact common to the class and the timing of the class certification motion.
When discussing whether the class presented common issues, the State pointed out more than seven differences among the Employees that preclude certification, but the Court found these differences to be unpersuasive because the "sub-classes take into consideration the most significant legal and factual differences that exist among the plaintiffs. Other differences are either insignificant or could be addressed in determining damages."
The State then argued that the trial court erred because it did not certify a class until after it ruled on the first motion for summary judgment. This argument was based on
Trial Rule 23(C)(1), which provides:
As soon as practicable after the commencement of an action brought as a class action, the court, upon hearing or waiver of hearing, shall determine by order whether it is to be so maintained.
The Court held that the State had waived this argument because it moved for summary judgment prior to the resolution of the class certification issues. "A contrary decision would allow defendants to avoid class certification by immediately moving for summary judgment."
The Merit Employees' Claims
The State argued that the trial court erred in committed clear error in concluding that because the State violated 31 IAC 2-4-2, the "equal pay for comparable work" provision, the merit Employees were entitled to damages for breach of employment contract. It argued that the State Personnel Act ("SPA") does not provide a private right of action. The Court disagreed because the State had a contractual relationship with its Employees and that rules, such as 31 IAC 2-4-2, are necessarily part of that employment contract. Thus, the merit Employees need not rely on the existence of a private right of action under the SPA because their suit was a breach of contract action.
The State further argued that an overtime-exempt employee is precluded from recovering damages for having to work forty hours per week, relying on
Arden. The Court disagreed because
Arden was an individual case which was decided on individual facts. Therefore, it did not bar the claims of overtime-exempt employees under all circumstances. The facts in this case demonstrated that there were some overtime-exempt employees who worked in split classes, so those employees were entitled to a recovery.
Non-Merit Employees' Claims
The non-merit employees could not make the same statute- and rule-based arguments as the merit employees. Therefore, they claimed that the State breached its contract pursuant to
Article 1, Section 23 of the Indiana Constitution, the Equal Privileges and Immunities Clause. The Court concluded that any relevant state constitutional provision is a part of the state employees' contractual relationship with the State and, therefore, the Equal Privileges and Immunities Clause is part of the terms and conditions of the non-merit Employees' employment contracts with the State.
The State contended that there are inherent distinctions between the inherent characteristics of state office work versus state institutional work that justified the alleged disparate treatment. But while the Court agreed that these differences justified differences in required work hours, they did not justify the disparity in pay. Therefore, the State breached its contractual obligation to the non-merit employees pursuant to the Equal Privileges and Immunities Clause.
Merit Employees' Back Pay
The trial court found that the class period extended from at least September 1973 until September 1993, when the State abolished the split class system by moving all employees to a 37.5-hour work week and awarded back pay over this twenty-year period. The State argues that the merit Employees‟ back pay is limited to the period beginning ten days before the filing of the complaint and ending when the State abolished the split class system. The Court agreed.
When the complaint in this case was filed in 1993, merit Employees were required to file any grievance regarding working conditions within ten days after the condition arose. Prior appellate decisions had held that state employees were, by statute, only entitled to back pay for a time period beginning ten days before they filed their respective complaints. The Court held that this statute still applied, even though the Employees were not required to exhaust their administrative remedies.
The merit Employees contend that Greene, Bishop I, and Bishop II are irrelevant because they did not address which statute of limitations applies when claimants are excused from having to exhaust administrative remedies. However, the ten-day limit on back pay is unrelated to the statute of limitation on bringing suit. The statute of limitations controls access to the courts. The amount of back pay to which a successful litigant is entitled constitutes another question entirely. Furthermore, although the Green and Bishop I petitioners followed the administrative grievance process, while here the Employees were excused from that process, that difference is simply not sufficiently compelling to justify an award of damages to merit Employees greater than that received by the Green and Bishop I petitioners.
The Court noted that this conclusion created "an apparent anomaly" because the non-merit employees' claims were not limited by the ten-day rule, while the merit employees' claims were.
Nevertheless, we are constrained to follow our supreme court's pronouncement in Bishop II. The enterprise of creating law is outside our sphere of authority. Although our supreme court has the ability to revisit the issue and redefine the law, until that time, we are obliged to apply it as it currently exists.
Conclusion
This discussion has only hit the highlights of this case and there are subjects that the Court discussed, such as other class certification questions, evidentiary challenges, and laches, which we have not even mentioned. We highly recommend reading the entire case to fully understand the breadth and scope of the issues with which it deals.
