2009-621, Board of Trustees of the New Hampshire Judicial Retirement Plan & a. v. Secretary of State

No. 2009-621

Merrimack

order of the Superior Court (Nicolosi DUGGAN, J. The defendant, the Secretary of State (State), appeals an

Getman, Schulthess & Steere, P.A.

Douglas, Leonard & Garvey, P.C. Michael A. Delaney Sudan Divestment Act. We reverse and remand.

the brief and orally), for the intervenor, New Hampshire Retirement System.

attorney general, on the brief and orally), for the defendant.

THE SUPREME COURT OF NEW HAMPSHIRE the brief) and David M. Howe, of Concord, by brief, for the plaintiff.

page is: http://www.courts.state.nh.us/supreme. a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 to press. Errors may be reported by E-mail at the following address: editorial errors in order that corrections may be made before the opinion goes Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Readers are requested to notify the Reporter, Supreme Court of New well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as operations in Sudan.” Pub. L. No. 110-174, § 3(b), 121 Stat. 2516, 2518

p. 2 local governments to divest assets in companies that conduct business Accountability and Divestment Act of 2007 (SADA) “[t]o authorize State and in the Darfur region of that country. In 2007, Congress enacted the Sudan government of Sudan has engaged in genocide against the non-Arab population

Since 2004, the United States government has recognized that the

other purposes. such benefits and shall not be encumbered for, or diverted to, any or disbursed as in trust for the exclusive purpose of providing for

provide for retirement and related benefits shall be held, invested and all contributions and payments made to any such system to by any of its political subdivisions, and of any successor system, systems for public officers and employees operated by the state or Hampshire retirement system and of any and all other retirement

of the assets and proceeds, and income therefrom, of the New appropriated each fiscal year to the same extent as is certified. All valuation and practice, independent of the executive office, shall be

system’s liabilities, as shall be determined by sound actuarial

Hampshire retirement system or any successor system to fund the The employer contributions certified as payable to the New

36-a provides: state’s voters later approved by a margin of 288,994 to 48,690. Part I, Article proposed Article 36-a to Part I of the New Hampshire Constitution, which the actuarially required. In response, the 1984 Constitutional Convention for state employees below what was determined by the NHRS trustees to be to finance unrelated state projects. The legislature also set contribution rates In the early 1980s, the legislature borrowed $5,000,000 from the NHRS

A:15, I-a. authority is accompanied by a strict fiduciary responsibility. See RSA 100trustees have the authority to set the trust’s investment strategy, but that contributions and investment income. RSA 100-A:16 (Supp. 2009). The NHRS RSA 100-A:2, :3. It is funded exclusively through member and employer defined benefit pension trust for state and political subdivision employees. See State, and earnings on investments. See RSA 100-C:13. The NHRS is a judges, see RSA 100-C:2, funded by contributions from its members and the statute. The Judicial Plan is a defined benefit pension trust for all state court Supp. 2009). Each eligible retiree receives a specified benefit set forth by pursuant to RSA chapter 100-C (Supp. 2009) and RSA chapter 100-A (2001 & pension benefit plans,” which invest and manage funds held by the State Retirement System (NHRS) (retirement systems, collectively), are “defined Judicial Retirement Plan (Judicial Plan), and the intervenor, New Hampshire The record reflects the following facts. The plaintiff, New Hampshire to cease compliance with the Act if “clear and convincing evidence” shows that p. 3 Additionally, the Act contains a “safety valve” provision permitting the trustees are exempted from the divestment requirement. RSA 100-D:3, VI. RSA 100-D:3, IV. “[I]ndirect holdings in actively managed investment funds” trustees are prohibited from acquiring securities of “scrutinized companies.” must be divested within fifteen months. RSA 100-D:3, III(a)(2). Finally, the company must be divested. RSA 100-D:3, III(a)(1). All of the fund’s holdings identification as “scrutinized,” at least fifty percent of the fund’s holdings in the operations.” RSA 100-D:3, III(a). Within nine months of a company’s

company,” the company continues to have “scrutinized active business process if, after ninety days following the first “engagement” with a “scrutinized RSA 100-D:3, II. Third, the system trustees must implement a divestment holdings unless the companies cease active business operations in Sudan. the Act, and notify the companies that the retirement systems will divest their requires the trustees to “engage” the “scrutinized companies,” inform them of supply military equipment within Sudan. RSA 100-D:1, XV. Second, the Act the Sudanese government, that are complicit in the Darfur genocide, or that companies” as companies that engage in business operations or contracts with holdings in the future.” RSA 100-D:2, I. The Act defines “scrutinized the public fund has direct or indirect holdings or could possibly have such system to “make its best efforts to identify all scrutinized companies in which requirements upon the retirement systems. First, it requires each retirement

The Act, which became effective on July 1, 2008, imposes several

and reports. See D (Supp. 2009). made numerous legislative findings, relying upon federal government findings certain “scrutinized companies” connected with that government. RSA ch. 100- Sudan Divestment Act (the Act). In enacting the legislation, the General Court retirement systems from investing public funds or maintaining investments in Congressional authorization, enacted RSA chapter 100-D (Supp. 2009), the support for the Sudanese government, and therefore restricted publicly funded In 2008, the New Hampshire General Court, pursuant to this concluded that the state’s financial resources should not be used to provide the value of an investment.” Id. Based upon these findings, the General Court human rights abuses, no matter how large or small . . . can negatively affect 2006, and that “a company’s association with sponsors of terrorism and and displaced more than 2,000,000 people from their homes between 2003and its Janjaweed allies had killed an estimated 300,000 to 400,000 people has occurred and may still be occurring in Darfur,” the government of Sudan

Laws 2008, 364:1. These findings included that “genocide

Sudan. Id. prohibit investment of its assets in companies engaged in business with (2007). Under SADA, a state or local government may divest its assets or a question of law, which we review de p. 4 the New Hampshire Constitution. “Whether or not a statute is constitutional is The sole issue on appeal is whether the Act violates Part I, Article 36-a of

we must look to its purpose and intent. Warburton v. Thomas When our inquiry requires us to interpret a provision of the constitution,

likely to be that meant by the people in its adoption.” Id. at 671. and most obvious interpretation of a constitution, if in itself sensible, is most the framers. Lake County v. Rollins, 130 U.S. 662, 670 (1889). “The simplest 386-87 (1992). The first resort is the natural significance of the words used by

Grievance Committee, 120 N.H. 856, 863 (1980). desirability of a statute is not for us to decide.” Smith Insurance, Inc. v. 664, 669 (Me. 1997). Furthermore, “[t]he wisdom, effectiveness, and economic Hynes v. Hale, 146 N.H. 533, 535 (2001); see also Irish v. Gimbel, 691 A.2d See statute, those doubts must be resolved in favor of its constitutionality. See approved the parties’ stipulation for entry of the injunction as a final order. N.H. 69, 77-78 (1983). When doubts exist as to the constitutionality of a Article 36-a rendered the Act unconstitutional. In July 2009, the trial court susceptible to a construction rendering it constitutional. White v. Lee, 124 demonstrated a substantial likelihood of success on its argument that Part I, such, a statute will not be construed to be unconstitutional when it is Act. In granting the motion, the trial court found that the NHRS had conflict exists between it and the constitution.” Id scope of Part I, Article 36-a. Accordingly, we reverse.. (quotation omitted). As will not hold a statute to be unconstitutional unless a clear and substantial 2008 and moved for preliminary injunctive relief prohibiting enforcement of the the amendment; and (3) the clear language of the ballot question describing the unconstitutional based upon Article 36-a. The NHRS intervened in November President delegates as evidenced by their statements prior to overwhelmingly approving, 152 N.H. 124, 133 (2005) (quotation omitted). “In other words, we petition for declaratory judgment seeking a ruling that the Act was declare it invalid except upon inescapable grounds.” Baines v. N.H. Senate understanding of Part I, Article 36-a by the 1984 Constitutional Convention In September 2008, the Board of Trustees of the Judicial Plan filed a “In reviewing a legislative act, we presume it to be constitutional and will not the text of Part I, Article 36-a of the New Hampshire Constitution; (2) the clear de We hold that the Act is constitutional based upon: (1) a literal analysis of novo. Linehan v. Rockingham County Comm’rs, 151 N.H. 276, 278 (2004). 67, 70 (2006). We also review the trial court’s interpretation of the constitution

Super. Ct. R. 161(b)(2). This appeal followed.

assets. RSA 100-D:7. divestment is too costly, resulting in at least a half percent diminution of trust p. 5 Webster’s dictionary defines “exclusive” as “single or sole.” Webster’s Third We have not previously defined the relevant terms within Article 36-a.

benefits and shall not be encumbered for, or diverted to, any other purposes.” invested or disbursed as in trust for the exclusive purpose of providing for such payments . . . to provide for retirement and related benefits shall be held, The relevant portion of Article 36-a provides: “[All] contributions and

people in adopting it. surrounding the adoption of the amendment to better discern the intent of the constitutional obligations. investments in scrutinized companies, which they claim conflicts with their

resolve any possible ambiguities, we next turn to the circumstances does not support the retirement systems’ interpretation. Nonetheless, to possible investment option. Therefore, the plain meaning of the amendment the retirement systems argue that the Act forces them to divest from purpose other than providing retirement benefits. It simply prohibits one investing or diverting the systems’ funds for any other purpose. Accordingly, Act in question does not require that the systems’ funds be used for any systems further contend that the plain language of Article 36-a prohibits system funds be used for the sole object of providing retirement benefits. The purpose of funding pension benefits for retired workers. The retirement language used, we conclude that the amendment requires only that retirement requires the systems’ trustees to hold and invest trust assets for the exclusive retirement systems argue that Article 36-a created a constitutional trust, which language of the amendment and relying upon the plain meaning of the to another,” id. at 663. Reading these terms together with the preceding id. at 747, and “divert” as “to turn from one course, direction, objective, or use Id. at 1847. It defines “encumber” as “to load with debts or other legal claims,” or aim to be kept in view in any plan, measure, exertion or operation: DESIGN.” as “something that one sets before himself as an object to be attained: an end New International Dictionary 793 (unabridged ed. 2002). It defines “purpose”

diverting retirement assets to fund other state budgetary needs. The The State argues that Article 36-a simply prohibits the State from

N.H. 40, 43 (1943) (quotation and citation omitted). which they became parts of the instrument.” Attorney General v. Morin, 93 expressions it may be necessary to give attention to the circumstances under whole as if enacted at one time, to ascertain the meaning of particular omitted). “While the constitution as it now stands is to be considered as a Workers’ Comp. Fund v. Flynn, Comm’r, 133 N.H. 17, 21 (1990) (quotation to have had to the electorate when the vote was cast.” N.H. Munic. Trust “[W]e will give the words in question the meaning they must be presumed p. 6 Journal of the Constitutional Convention

choice in paying its share.

pay their share. They have no choice. The state needs to have no pay my share, my municipality pays its share, the state employees when it feels good, and not after everything else, but before. . . . I You have said that you will pay to their retirement system, not as legislators, as employers, made a contract with your employees.

system was going down the tubes. That is the concern. You have,

forty-five employees call, wanting to know if their retirement

p. 6 Journal of the Constitutional Convention

the delegates sought only to prohibit the legislature from allocating retirement Greenwood). These statements provide strong support for the conclusion that When the state legislature did their budget process last time, I had

exactly what happened in this past session of the legislature. take six million dollars, and spend it some place else, and that’s adjust some projections, and short-fund the retirement system and balance the budget. You need a few millions dollars, well, we’ll just years . . . it becomes budget desperation when you’re looking to As well publicized, the budget concerns that happen every two

Additionally, Delegate Greenwood stated:

legislature to fund general state revenues during a budget crisis. See aftermath of the high-profile diversion of state retirement system assets by the King stated: The 1984 Constitutional Convention occurred in the immediate government operations and keep the retirement system solvent. As Delegate the legislature from diverting money from the retirement system to fund other regarding the amendment, delegates repeatedly emphasized the need to prevent Constitutional Convention, supra at 261 (Delegate Ramsey). During the debate Governor from taking similar action in the future. See Journal of the Delegates sought a constitutional amendment to prevent the legislature or Denies Money Taken from Fund, The Union Leader, Oct. 14, 1983, at 5. of the Constitutional Convention 263-65 (1984); Donn Tibbetts, Sununu

Munic. Trust Workers’ Comp. Fund, 133 N.H. at 21. common meaning while being reflective of its known purpose or object.” N.H. if they interpret the amendment’s language “in accordance with its plain and consider a delegate’s statements in determining the meaning of an amendment surrounding circumstances.” Morin, 93 N.H. at 243 (quotation omitted). We gather their intention from the language used, viewed in the light of the situation of the parties at the time the instrument was made, that it may “[I]t is the duty of the court to place itself as nearly as possible in the p. 7 U.S.C. §§ 1001-1191c (2006), and RSA 100-A:15. later codified by the Employee Retirement Income Security Act (ERISA), 29 “exclusive purpose” refer directly to a trustee’s common law fiduciary duty, upon the common law of trusts. Additionally, the NHRS argues that the words retirement systems’ funds, giving rise to constitutional fiduciary duties based trust” evidences an intent to create a constitutional trust with respect to the “exclusive purpose.” The Judicial Plan argues that the use of the words “in above, they place significant emphasis upon the phrases “in trust” and action not in the best interests of the retirement funds. In particular, as noted The retirement systems also argue that Article 36-a broadly prohibits any by the state or its political subdivisions shall be used exclusively

other retirement system for public officers and employees operated

the exclusive purpose of providing retirement benefits. because it does not prevent the retirement systems from using their assets for the assets of both the New Hampshire retirement system and any hold that Article 36-a is not inconsistent with the Sudan Divestment Act Are you in favor of amending the constitution to provide that all Journal of the Constitutional Convention of retirement system assets to fund other state operations. Accordingly, we clear that the voters contemplated only the problem of the day – that is, the use statements of many of the delegates at the constitutional convention make together with the events surrounding the adoption of the amendment and the approved the amendment. The plain meaning of the ballot question taken were the words facing the voters on the ballot when they overwhelmingly cannot use retirement system assets to fund other State operations. These language of the ballot question simply shows an intent to ensure that the State neither phrase was included in the ballot question to the voters. The plain invested or disbursed as in trust” and “exclusive purpose” in Article 36-a,

ballot question presented to the voters, which asked: Additional support for this conclusion is found in the language of the valuation and practice? fully funded each fiscal year as determined by sound actuarial

While the retirement systems place great emphasis on the phrases “held,

Hampshire retirement system or any successor system shall be diverted or used for any other purpose, and that the New for the benefit of any such retirement system and shall not be

constitutional trust. constitutionalizing a trustee’s common law fiduciary duty or creating a system funds to other areas. Indeed, the debate was devoid of any reference to law standard into the New Hampshire Constitution. See p. 8 unlikely that the voters knew of or sought to incorporate an ERISA or common As an initial matter, given the wording of the ballot question, it is highly

See comport with the simplest and most obvious interpretation of the words used. the plain meaning of the words in the amendment and certainly does not construction”). Moreover, the retirement systems’ interpretation goes beyond

electorate. See with its plain meaning and unlikely to have been commonly understood by the 8 This interpretation construes Article 36-a in a way that is incompatible

contrary to the plain meaning of Article 36-a. id. Therefore, the interpretation offered by the retirement systems is

interpretation because voters are unlikely versed in “the niceties of U.S. at 671 (warning against the application of complex rules of statutory

constitutionalize it. doctrine and deliberately adopted those words in an attempt to Therefore, NHRS argues, the electorate likely knew of the exclusive purpose ERISA and drew voters’ attention to how their retirement funds were managed. plans. These well-publicized breaches, they contend, both led to the creation of public attention was focused upon numerous abuses involving public pension NHRS claims that prior to the 1984 Constitutional Convention, significant

N.H. Munic. Trust Workers’ Comp. Fund, 133 N.H. at 21. The

investments in scrutinized companies in Sudan. benefit the plan beneficiaries, including divesting the retirement systems’ Article 36-a, prohibits the plan trustees from taking any action that does not doctrine.” They claim that the exclusive purpose doctrine, as adopted in that Article 36-A was written to constitutionalize the exclusive purpose added.) Therefore, the retirement systems contend that “one can only conclude purpose of providing benefits to participants and beneficiaries . . . .” (Emphasis interest of the participants and beneficiaries; [and] (2) [f]or the exclusive discharge duties with respect to the retirement system: (1) [s]olely in the (2006) (emphasis added). RSA 100-A:15 provides that “[a] trustee . . . shall reasonable expenses of administering the plan.” 2 p. 9 9 U.S.C. § 1104(a)(1)(A) providing benefits to participants and their beneficiaries; and (ii) defraying of the participants and beneficiaries and for the exclusive purpose of: (i) 496 (1996). ERISA requires that private plan trustees act “solely in the interest content from the common law of trusts. Varity Corp. v. Howe, 516 U.S. 489, correctly points out, the fiduciary duties imposed by ERISA draw much of their interest of the beneficiaries” (emphasis added)). Additionally, as the NHRS Trusts § 78(1) (2007) (“a trustee has a duty to administer the trust solely in the Trusts § 170 (W.F. Fratcher ed., 4th ed. 2001)); see also Restatement (Third) of (brackets, quotations and ellipses omitted) (quoting 2A A. Scott, The Law of interest of the beneficiaries.’” In re Baylis, 313 F.3d 9, 20 (1st Cir. 2002) duty owed[.] [It is] the duty of a trustee to administer the trust solely in the Under the law of trusts, the duty of loyalty is “‘[t]he most fundamental 9

BRODERICK, C.J.