Gilmore v. Gallego ( 2023 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
MARK GILMORE, et al.,
Plaintiffs/Appellants,
v.
KATE GALLEGO, et al.,
Defendants/Appellees.
No. 1 CA-CV 22-0049
FILED 4-18-2023
Appeal from the Superior Court in Maricopa County
No. CV2019-009033
The Honorable Daniel G. Martin, Judge
AFFIRMED IN PART, VACATED IN PART
COUNSEL
The Goldwater Institute, Phoenix
By Jonathan Riches, Timothy Sandefur
Counsel for Plaintiffs/Appellants
Sherman & Howard, L.L.C., Phoenix
By John Alan Doran, Matthew A. Hesketh
Counsel for City Defendants/Appellees
Martin & Bonnett, P.L.L.C., Phoenix
By Daniel Bonnett, Jennifer Kroll
Counsel for Intervening Defendant/Appellee AFSCME
GILMORE, et al. v. GALLEGO, et al.
Opinion of the Court
Pacific Legal Foundation, Phoenix
By James M. Manley, Deborah J. La Fetra
Co-Counsel for Amicus Curiae Counsel for Plaintiffs/Appellants
Pacific Legal Foundation, Sacramento, California
By Deborah J. La Fetra
Co-Counsel for Amicus Curiae Counsel for Plaintiffs/Appellants
American Civil Liberties Union of Arizona, Phoenix
By K.M. Bell, Jared G. Keenan
Amicus Curiae Counsel for Plaintiffs/Appellants
OPINION
Presiding Judge Samuel A. Thumma delivered the opinion of the Court, in
which Vice Chief Judge David B. Gass joined. Judge Cynthia J. Bailey
concurred in part and dissented in part.
T H U M M A, Judge:
¶1 Plaintiffs Mark Gilmore and Mark Harder appeal from the
entry of summary judgment against them and in favor of the City of
Phoenix and the American Federation of State, County and Municipal
Employees, Local 2384 (Union) on plaintiffs’ claims that the City’s
employment practices violated Arizona’s Constitution. The superior court
determined that plaintiffs’ claims fail because they cannot show that the
“release time” provisions in an agreement between the City and the Union
violate their rights to free speech, freedom of association or to work, or the
Gift Clause, under Arizona’s Constitution. For the reasons below, summary
judgment is affirmed but an award of attorneys’ fees against plaintiffs is
vacated.
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Opinion of the Court
FACTS AND PROCEDURAL HISTORY
¶2 Individuals who work for the City are in different units for
collective bargaining. Unit II consists of employees engaged in skilled
trades, such as mechanics, electricians and maintenance workers. See
Phoenix City Code Art. XVII (P.C.C.) § 2-212(A)(2)(b) (2023).1 The City’s
ordinances recognize the right of units to organize and designate an
authorized employee representative to collectively bargain with the City for
“wages, hours and working conditions.” P.C.C. §§ 2-210(2), 2-209(2), 2-
214(B). Starting in 1976, the Union has been Unit II’s authorized employee
representative. During that time, the Union has acted as the exclusive
representative for all Unit II employees, no matter if they belong to the
Union. Of the approximately 1,500 employees in Unit II, 671 are Union
members.
¶3 Every other year, the City and the Union collectively bargain
the terms of an agreement for Unit II employees. The resulting collective
bargaining agreement is set forth in a Memorandum of Understanding, or
MOU. An MOU contains the terms of employment for Unit II employees,
including wages and benefits. After the City and the Union agree to an
MOU, it is submitted to the City Council for approval. P.C.C. §§ 2-210(12),
2-215(C). If the City Council approves, the MOU becomes effective. P.C.C.
§ 2-215(C).
¶4 In 2019, the City and the Union agreed to, and the City
Council approved, an MOU for Unit II employees for July 1, 2019, to June
30, 2021. This MOU, which is about 60 pages long, includes provisions
governing what the parties call “release time.” See MOU § 1-3(A). “While
on release time, Union members and other Unit II employees are released
from their normal job duties but still paid at the same rate(s) of pay by the
City” to perform other activities. The MOU states release time provides “an
efficient and readily available point of contact for addressing labor-
management concerns” between the City and the Union.
¶5 The MOU contains four general categories of “release time:”
(1) four full-time release time positions for Union members to engage
exclusively in Union activities; (2) an annual bank of up to 3,183 release time
hours to be used for Union purposes as permitted under the MOU; (3) 150
release time hours for Union members to attend seminars, lectures and
conventions and (4) up to $14,000 from the City to the Union to reimburse
costs of Union members to attend training for employee relations skill
1Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.
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Opinion of the Court
development. MOU § 1-3(A). The annual cost of release time is about
$499,000, or about 0.31% of the City’s annual $169 million payment required
under the MOU.
¶6 Plaintiffs work for the City as mechanics and belong to Unit
II. Although plaintiffs once were Union members, they terminated their
membership before suing. In October 2019, plaintiffs sued the City
(including the Mayor and City Manager), seeking declaratory and
injunctive relief based on their claims that the MOU’s release time
provisions violate Arizona’s Constitution. Plaintiffs argued release time is
paid for by all Unit II employees, including non-Union members -- not the
City -- and that the release time provisions unconstitutionally violate their
rights to free speech, to free association and to work. Plaintiffs also argued
the release time provisions violate Arizona’s Gift Clause. The Union
intervened as a defendant.
¶7 After the close of discovery, plaintiffs and defendants (the
City and the Union) filed competing motions for summary judgment on all
claims. After full briefing and oral argument, the superior court entered
summary judgment for defendants and against plaintiffs. Tacitly rejecting
defendants’ arguments that plaintiffs lacked standing, the court held that
plaintiffs’ free speech, free association and right to work claims failed
because “the undisputed facts demonstrate that Plaintiffs do not fund
release time.” The court also held that plaintiffs’ Gift Clause claim fails
because the release time provisions serve a public purpose and the
consideration “is not grossly disproportionate so as to constitute a
subsidy.” Concluding this is a “contested action arising out of a contract,”
the superior court later awarded defendants more than $355,000 in
attorneys’ fees and about $12,000 in taxable costs. See Ariz. Rev. Stat.
(A.R.S.) §§ 12-341, -341.01.
¶8 This court has jurisdiction over plaintiffs’ timely appeal from
the resulting judgment under Article 6, Section 9, of the Arizona
Constitution and A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).2
2 The court acknowledges and appreciates the amici briefs filed by Pacific
Legal Foundation and the American Civil Liberties Union Foundation of
Arizona and the parties’ responses. To the extent the amici ask the court to
address issues and arguments the parties did not raise, the court declines
that request. See Town of Chino Valley v. City of Prescott, 131 Ariz. 78, 84 (1981)
(amici curiae may not create, extend or enlarge issues).
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DISCUSSION
¶9 This court reviews the entry of summary judgment de novo,
“viewing the evidence and reasonable inferences in the light most favorable
to the party opposing the motion,” Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12
(2003), to determine “whether any genuine issues of material fact exist,”
Brookover v. Roberts Enters., Inc., 215 Ariz. 52, 55 ¶ 8 (App. 2007).
I. Plaintiffs Have Standing to Challenge the Release Time
Provisions.
¶10 The City argues plaintiffs lack standing because they did not
suffer an injury-in-fact to any legally protected right or interest. Unlike in
federal court, standing in Arizona state court “is not a constitutional
mandate” and, instead, is a matter of “prudential or judicial restraint.”
Fernandez v. Takata Seat Belts, Inc., 210 Ariz. 138, 140 ¶ 6 (2005) (citations
omitted). As stated by the Arizona Supreme Court, “[t]o gain standing to
bring an action, a plaintiff must allege a distinct and palpable injury.” Id.(quoting Sears v. Hull, 192 Ariz. 65, 69 ¶ 16 (1998)); accord Mills v. Ariz. Bd.
of Tech. Regis., 514 P.3d 915, 923 ¶ 24 (2022) (same).
¶11 Plaintiffs allege that, under the MOU, they are required to
direct part of their total compensation to release time. Plaintiffs also allege
that the City pays for release time using tax revenue. The record shows that
plaintiff Harder lives in the City. Accordingly, plaintiffs have adequately
alleged an injury-in-fact to their protected rights and interests sufficient to
show standing. See Cheatham v. DiCiccio, 240 Ariz. 314, 317 ¶ 3 (2016);
Wistuber v. Paradise Valley Unified Sch. Dist., 141 Ariz. 346, 347 (1984); see also
Brush & Nib Studio, LC v. City of Phx., 247 Ariz. 269, 279–82 ¶¶ 33–47 (2019)
(finding plaintiffs had standing to bring compelled speech claim against the
City). For these reasons, the City has failed to show plaintiffs lack standing.3
3 Although the MOU has now expired, the challenges plaintiffs raise are
capable of repetition and thus are not moot. See David G. v. Pollard ex rel.
Cnty. of Pima, 207 Ariz. 308, 309 ¶ 6 (2004) (citing cases). Among other
things, the City and Union entered into a new MOU for 2021–2023, which
contains identical release time provisions; the City has used release time
provisions “[f]or decades” and the Arizona Supreme Court has considered
challenges to release time after the relevant MOU expired. See Cheatham, 240
Ariz. at 316 ¶ 1.
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II. The City, Not Plaintiffs, Pays for Release Time.
¶12 Along with their Gift Clause challenge discussed below,
plaintiffs argue the release time provisions of the MOU violate Arizona’s
Constitution for three reasons: they constitute compelled speech and
association and violate their right to work. See Ariz. Const. art. II, § 6
(“Every person may freely speak, write, and publish on all subjects, being
responsible for the abuse of that right.”); § 5 (“The right of petition, and of
the people peaceably to assemble for the common good, shall never be
abridged.”); art. XXV (“No person shall be denied the opportunity to obtain
or retain employment because of non-membership in a labor organization,
nor shall the State or any subdivision thereof, or any corporation,
individual or association of any kind enter into any agreement, written or
oral, which excludes any person from employment or continuation of
employment because of non-membership in a labor organization.”). A
critical component of these three claims is whether Unit II employees who
are not Union members (like plaintiffs) pay, or whether the City pays, for
release time under the MOU. The superior court determined these claims
fail “because the undisputed facts demonstrate that Plaintiffs do not fund
release time.” On appeal, plaintiffs argue that conclusion was in error.
¶13 Plaintiffs first argue the “plain language” of the MOU states
plaintiffs pay for release time “as part of their compensation.” The sole
support plaintiffs rely on in making this claim is one sentence in the MOU
that states: “The cost to the City for these release positions and release
hours, including all benefits, has been charged as part of the total
compensation detailed in this agreement.” MOU § 1-3(A). Plaintiffs argue
this sentence means “release time is compensation to all Unit [II] employees.”
But this sentence summarizes “[t]he cost to the City;” it does not, somehow,
show that Unit II employees pay for release time out of the employees’
personal compensation.
¶14 Plaintiffs correctly quote Janus v. Am. Fed’n of State, Cnty., &
Mun. Emps., Council 31 for the proposition that “[n]either an agency fee nor
any other payment to the union may be deducted from a nonmember’s
wages.” 138 S. Ct. 2448, 2486 (2018). But the mandatory payment in Janus
(employer to employee, but with a deduction of the non-union employee’s
wages for payments to a union) is not what the MOU requires or
contemplates. There is no claim that plaintiffs are credited with phantom or
other wages that are never received because they are reduced by required
Union dues or deductions or any other payment mechanism that violates
Janus. Plaintiffs admit they have received all the wages and benefits
promised to them under the MOU. Simply put, plaintiffs are not forced to
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Opinion of the Court
make any payment to the Union, in any respect. The release time is paid by
the City, not by deductions from Unit II employees’ wages.
¶15 The City’s total cost for Unit II includes wages, benefits,
pension contributions, uniforms, tools, equipment allowances and
expenditures for equipment and facilities. The cost to the City is funded by
tax revenues. Indeed, plaintiffs allege that “[t]he City finances the benefits
of release time to the Union under the MOU through city tax revenue.”
During their depositions, plaintiffs conceded taxpayers finance wages for
Unit II employees. Plaintiffs also conceded that the City would not have to
pay Unit II employees higher wages if release time was eliminated. Plaintiff
Gilmore admitted the City “can do whatever it wants” with the money
allocated for release time and agreed “that money belongs to the City, and
the City gets to choose what to do with it.” Plaintiff Harder testified the City
may use the money as needed. The City -- not Unit II employees -- pays for
release time under the MOU.
¶16 At oral argument before this court, plaintiffs argued that
Cheatham “held that release time is funded as a component of individual
compensation.” Defendants counter, however, that Cheatham would not
have undertaken a Gift Clause analysis if the employees, and not the City,
paid for release time. When applicable, the Gift Clause restricts
expenditures by public entities, not by employees or private parties. See
Ariz. Const. art. IX, § 7 (limiting action by the state, county, city, town,
municipality “or other subdivision of the state”). As defendants argue,
Cheatham would have had no reason to address the Gift Clause if the City
did not pay for release time. Cheatham is not, as plaintiffs argue, “simply
dispositive of the question of whether [plaintiffs] fund release time.”
¶17 The MOU in Cheatham said release time “has been charged as
part of the total compensation contained in this agreement in lieu of wages
and benefits.” 240 Ariz. at 319 ¶ 14 (emphasis added). The italicized language
is not contained in the MOU at issue here. Moreover, in Cheatham, “[o]ne of
the City’s negotiators testified, without contradiction, that if the City had
not agreed to pay for release time, the corresponding amounts would have
otherwise been part of the total compensation available” to the applicable
City unit. Id. at 318–19 ¶ 14. In this case, there is no such evidence in the
record.
¶18 Finally, plaintiffs assert that the terms of prior MOUs show
that plaintiffs funded release time in the MOU at issue here. Before 2014,
MOUs authorized paid release time. In 2014, the MOUs eliminated paid
release time and allowed Unit II employees to voluntarily donate an
additional eight hours of vacation time to fund release time. In 2019, the
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Opinion of the Court
MOUs went back to authorizing paid release time and eliminated the
additional eight hours of vacation time. See MOU § 1-3(A). Plaintiffs claim
that the elimination of the eight hours of vacation time means they are
funding the release time. Not so. That the City and the Union agreed on
different terms in prior MOUs and then reverted to the paid release time in
the MOU at issue here does not show that Unit II employees’ pay for release
time. See also Smith v. City of Phx., 175 Ariz. 509, 514–15 (App. 1992) (a public
employee has no contractual right to past compensation); Bennett ex rel.
Ariz. State Pers. Comm’n v. Beard, 27 Ariz. App. 534, 536–37 (1976) (same).
On the record presented, the superior court properly found that the City,
not plaintiffs, pays for release time.
III. Because the City Pays for Release Time, Plaintiffs’ Free Speech,
Free Association and Right to Work Claims Fail.
¶19 As plaintiffs conceded at oral argument before this court, their
free speech and association and right to work claims each rest on the
foundation that plaintiffs (not the City) pay for release time. But the factual
predicate that plaintiffs pay for release time is not present here. Thus, these
claims under Arizona’s Constitution fail.
¶20 First, the City, not plaintiffs, pay for release time, meaning
plaintiffs are not “compelled to subsidize” the Union’s speech or other
activities. Thus, release time does not implicate plaintiffs’ freedom of
speech, which “necessarily includes the freedom of deciding ‘both what to
say and what not to say.’” Brush & Nib, 247 Ariz. at 282 ¶ 48 (citation
omitted). Nor does it implicate impermissible compelled speech, which
“includes both the right to speak freely and the right to refrain from
speaking at all.” Id. (citation omitted). Because plaintiffs are not compelled
“to host or accommodate another’s message,” their free speech rights have
not been violated. Id. at 283 ¶ 51. For these same reasons, and as discussed
above, release time does not force “public employees . . . to subsidize a
union, even if they choose not to join and strongly object to the positions
the union takes in collective bargaining and related activities” in violation
of “the free speech rights of nonmembers by compelling them to subsidize
private speech on matters of substantial public concern.” Janus, 138 S. Ct. at2459–60. Thus, plaintiffs’ free speech claim fails.
¶21 Second, plaintiffs are not compelled to associate with the
Union. Plaintiffs, who are Unit II employees, are not Union members and
are not required to be Union members. In fact, no Unit II employee is
required to join or associate with the Union. There is no factual support that
the City requires non-Union members to associate with the Union, as
plaintiff Harder conceded during his deposition. Both plaintiffs testified at
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their depositions they were not forced to financially support the Union and
were not forced to adopt the Union’s positions or viewpoints. Thus,
plaintiffs have shown no violation of their freedom of association rights,
which include the “freedom not to associate.” Roberts v. U.S. Jaycees, 468 U.S.
609, 623 (1984); see also Fraternal Ord. of Eagles, Inc., Tucson Aerie No. 180 v.
City of Tucson, 168 Ariz. 598, 601 (App. 1991) (noting freedom of association
is implicated where the “State interferes with individuals’ selection of those
with whom they wish to join in a common endeavor”) (citation omitted);
City of Tucson v. Grezaffi, 200 Ariz. 130, 136 ¶ 13 (App. 2001) (explaining the
Constitution protects a person’s “right to associate for the purpose of
engaging in those activities protected by the First Amendment”) (citation
omitted).
¶22 Finally, plaintiffs have shown no violation of the right to work
set forth in the Arizona Constitution. Ariz. Const. art. XXV (“No person
shall be denied the opportunity to obtain or retain employment because of
non-membership in a labor organization.”); accord A.R.S. § 23-1302 (same).
The right to work may be violated when non-union members are required
to financially contribute to a union. Am. Fed’n of State, Cnty. & Mun. Emps.,
AFL–CIO, Local 2384 v. City of Phx., 213 Ariz. 358, 359 ¶ 1 (App. 2006).
Plaintiffs, however, admit they are not forced to pay fees or dues to the
Union. Plaintiffs do not have money deducted from their wages to support
the Union. Plaintiffs admit they receive all wages and benefits they are
entitled to under the MOU. Accordingly, plaintiffs have not shown that
their right to work has been violated.
IV. Plaintiffs Have Not Shown That Release Time Required by the
MOU Violates the Gift Clause.
¶23 Plaintiffs argue the release time required by the MOU violates
the Gift Clause of Arizona’s Constitution. This court reviews the
interpretation and application of constitutional provisions de novo.
Cheatham, 240 Ariz. at 317–18 ¶ 8. Plaintiffs bear the burden of proving a
Gift Clause violation. Schires v. Carlat, 250 Ariz. 371, 374 ¶ 7 (2021) (citation
omitted).
¶24 The Gift Clause provides: “Neither the state, nor any county,
city, town, municipality, or other subdivision of the state shall ever give or
loan its credit in the aid of, or make any donation or grant, by subsidy or
otherwise, to any individual, association, or corporation.” Ariz. Const. art.
IX, § 7. As noted by the Arizona Supreme Court, the Gift Clause represents
the public’s reaction to “extravagant dissipation of public funds by
counties, townships, cities, and towns in aid of the construction of railways,
canals, and other like undertakings” and was primarily designed to
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“prevent the use of public funds raised by general taxation in aid of
enterprises apparently devoted to quasi public purposes, but actually
engaged in private business.” Turken v. Gordon, 223 Ariz. 342, 346 ¶ 10
(2010) (citations omitted). Although Gift Clause challenges often involve
property rights, see, e.g., Schires, 250 Ariz. at 373 ¶ 1 (payments to a private
university and private property owner); Turken, 223 Ariz. at 344 ¶ 4
(parking garage spaces); Ariz. Ctr. for Law in Pub. Int. v. Hassell, 172 Ariz.
356, 361 (App. 1991) (interest in riverbed land); Defenders of Wildlife v. Hull,
199 Ariz. 411, 415 (App. 2001) (same); Kromko v. Ariz. Bd. of Regents, 149 Ariz.
319, 322 (1986) (hospital and leased land), the Gift Clause also applies to
release time challenges, see Cheatham, 240 Ariz. at 316–17 ¶¶ 1–3; Wistuber,
141 Ariz. at 347–48.
¶25 Arizona has adopted a two-pronged test to determine
whether a public entity’s expenditure violates the Gift Clause, first focusing
on whether the action being challenged serves a public purpose and, if so,
then focusing on whether the value received by the public is far exceeded
by the consideration paid. Schires, 250 Ariz. at 374 ¶ 7 (citing Wistuber, 141
Ariz. at 349). “First, a court asks whether the challenged expenditure serves
a public purpose. If not, the expenditure violates the Gift Clause, and the
inquiry ends.” Id. at 374–75 ¶ 7 (citation omitted). “If a public purpose
exists, the court secondarily asks whether ‘the value to be received by the
public is far exceeded by the consideration being paid by the public.’ If so,
the public entity violates the Gift Clause by ‘providing a subsidy to the
private entity.’” Id. at 375 ¶ 7 (citations omitted). When the court considers
a Gift Clause challenge, it looks at the whole of the transaction; “[a]
panoptic view of the facts of each transaction is required.” Cheatham, 240
Ariz. 314 ¶ 10 (quoting Wistuber, 141 Ariz. at 349); accord Turken, 233 Ariz.
at 352 ¶ 47.
A. Governing Cases Show the MOU Serves a Public Purpose.
¶26 Plaintiffs argue that release time “serves the Union’s private
interests, not public purposes.” Although elusive to define, “a public
purpose promotes the public welfare or enjoyment.” Schires, 250 Ariz. at
375 ¶ 8 (citation omitted). “A court can consider both direct and indirect
benefits of a government expenditure in deciding whether it serves a public
purpose . . . .” Id. In determining whether a public purpose exists, the court
must give a governmental entity appropriate deference. See Cheatham, 240
Ariz. 320 ¶ 21; accord Schires, 250 Ariz. at 375 ¶ 8 (“[A] court should not
concern itself with the wisdom or necessity of the expenditure in question,
as those considerations lie exclusively within the public entity’s
discretion.”); Turken, 223 Ariz. at 349 ¶ 28 (similar). A public purpose is
absent “only in those rare cases in which the governmental body’s
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discretion has been ‘unquestionably abused.’” Schires, 250 Ariz. at 375 ¶ 9
(quoting Turken, 223 Ariz. at 349 ¶ 28).
¶27 Twice before, in considering similar (but not identical) release
time provisions, the Arizona Supreme Court has concluded the provisions
serve a public purpose. See Cheatham, 240 Ariz. at 321 ¶ 27 (rejecting claim
that release time provisions in MOU do not serve a public purpose; “[t]he
City Council did not abuse its discretion in concluding that the MOU,
including the release time provisions, serves a public purpose”); Wistuber,
141 Ariz. at 347–48 (similar).
¶28 Plaintiffs point to no specific provision in the MOU here to
establish the Cheatham analysis should not apply. Instead, plaintiffs cite to
a pre-Cheatham case, Kromko, 149 Ariz. at 319, for the proposition that the
City’s “control and oversight over the use of release time . . . is
constitutionally required.” Plaintiffs claim that, because such control is
lacking, Kromko shows the MOU does not serve a public purpose. Kromko
noted that the nonprofit “independent corporation” that leased a public
hospital was “still subject to the control and supervision of public officials,”
abating “the fear of private gain or exploitation of public funds” prompting
the Gift Clause. Id. at 321. Kromko did not, as plaintiffs suggest, hold that
public “control and oversight . . . is constitutionally required” under the
Gift Clause. Instead, Kromko rejected a Gift Clause challenge. Id. at 322. In
doing so, Kromko stated “Wistuber is still good law” and concluded the lease
being challenged “serves a statutorily recognized public purpose,” akin to
the public purpose of release time stated in the MOU. Id. And Cheatham
found a public purpose in similar release time provisions nearly 30 years
after Kromko was decided. See Cheatham, 240 Ariz. at 321 ¶ 27. For these
reasons, the superior court did not err in concluding that the MOU,
including its release time provisions, serves a public purpose.
B. Governing Cases Show the Value Received by the Public Is
Not Far Exceeded by the Consideration Paid by the Public.
¶29 Government action serving a public purpose may violate the
Gift Clause if “the value to be received by the public is far exceeded by the
consideration being paid by the public.” Schires, 250 Ariz. at 376 ¶ 13
(quoting Wistuber, 141 Ariz. at 349); see also Turken, 223 Ariz. at 348 ¶ 22
(“When government payment is grossly disproportionate to what is
received in return, the payment violates the Gift Clause.”). Consideration
“has a settled meaning in contract law,” which is “what one party to a
contract obligates itself to do (or to forbear from doing) in return for the
promise of the other contracting party.” Turken, 223 Ariz. at 349 ¶ 31.
“Although the consideration paid by a public entity may be legally
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sufficient under contract law, it does not necessarily follow that it is
sufficient under the Gift Clause.” Schires, 250 Ariz. at 376 ¶ 14. Thus, an
examination of the adequacy of consideration is appropriate under the Gift
Clause analysis “because paying far too much for something effectively
creates a subsidy from the public to the seller.” Cheatham, 240 Ariz. at 321
¶ 29 (quoting Turken, 223 Ariz. at 350 ¶ 32).
¶30 “In deciding the sufficiency of consideration under the second
prong, courts should not give deference to the public entity’s assessment of
value but should instead identify the fair market value of the benefit
provided to the entity and then determine proportionality.” Schires, 250
Ariz. at 378 ¶ 23 (disapproving a statement in Cheatham that deference to
the public entity is appropriate when analyzing the sufficiency of
consideration). The court does not consider “anticipated indirect benefits”
as sufficient consideration. See Schires, 250 Ariz. at 376 ¶ 14 (quoting Turken,
233 Ariz. at 350 ¶ 33). Rather, the relevant consideration for Gift Clause
analysis consists of “direct benefits that are ‘bargained for as part of the
contracting party’s promised performance.’” Id. The party bringing the Gift
Clause challenge bears the burden of proving the disproportionality of
consideration. Wistuber, 141 Ariz. at 350.
¶31 Cheatham, as modified by Schires, provides the analysis and
shows that the consideration paid by the public does not far exceed the
value received by the public under the MOU. As applicable here, Cheatham
recognized that the MOU at issue in that case was not only an agreement
between the City and the union, but it bound every employee in the
applicable unit working for the City. 240 Ariz. at 322 ¶ 32. Adopting a
“panoptic view” of the transaction, Cheatham noted that, when faced with a
Gift Clause challenge to a collective bargaining agreement, courts cannot
consider the challenged provisions in isolation. Id. at 321–22 ¶¶ 30–31.
Instead, when focusing on what the City received, “it is necessary to
consider what the [unit employees] have agreed to do -- to work under the
wages, hours, and conditions specified in the MOU -- in exchange for the
compensation package.” Id. at 322 ¶ 32. In exchange for the release time
provisions included in the Cheatham MOU, the City received in return the
ability to impose terms of employment on every unit employee, union
members and non-union members alike. Id. That, Cheatham continued, was
a direct (not indirect) benefit for the City by employing those unit
employees. Id. at 324 ¶ 42.
¶32 In looking at the specific cost of release time, Cheatham also
undertook a financial analysis. Of the $660 million paid by the City for the
unit employees, Cheatham noted the cost of the release time was about $1.7
million. Id. at 319 ¶ 14. Noting that plaintiffs never argued the $660 million
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the City paid in total compensation under the MOU was grossly
disproportionate to the services provided by the Unit 4 employees,
Cheatham found the $1.7 million for release time -- about 0.26% of the total
compensation and about $322 annually per unit member -- was “not
‘grossly disproportionate’ to the value of what [the union] and the [unit
employees] have agreed to provide in return.” Id. at 322 ¶ 33 (quoting
Turken, 223 Ariz. at 350 ¶ 35).
¶33 Cheatham rejected the observation that there was “no showing
that absent release time, the City would be unable to employ” unit
employees. Id. at 322 ¶ 34. Instead, “[t]he pertinent issue for a Gift Clause
analysis is not whether a particular expenditure is the only way to achieve
a public purpose, but instead whether a comprehensive examination of the
agreement reveals that the expenditure is grossly disproportionate to the
benefit the public receives.” Id. (citing Turken, 223 Ariz. at 350 ¶ 35).
¶34 As in Cheatham, as modified by Schires, the MOU at issue here
is an agreement between the City and the Union that is binding on every
Unit II employee who works for the City. In exchange for the provisions
provided for in the MOU, Unit II employees have agreed to work for the
City under the wages, hours and conditions specified in the MOU. This
tracks the “general contractual principle” that the City’s performance
(agreement to pay release time) may be supported by consideration in the
form of performance or promise by either the Union or the Unit II
employees. See Cheatham, 240 Ariz. at 322 ¶ 32 (citing Restatement (Second)
of Contracts § 71(4), cmt. e (Amer. Law Inst. 1981)).
¶35 The MOU in Cheatham expressly stated that release time “has
been charged as part of the total compensation contained in this agreement
in lieu of wages and benefits.” 240 Ariz. at 320 ¶ 14 (emphasis added).
Although substantially identical to the MOU in Cheatham, the MOU at issue
here does not include the phrase “in lieu of wages and benefits.” Citing the
absence of that phrase here, the Dissent concludes that the Gift Clause has
been violated. More specifically, citing the absence of that phrase, the
Dissent [at ¶ 53] concludes that “the release time provisions are not
supported by adequate consideration” because “the Unit II employees did
not bargain for the release time provisions as part of their compensation.”
This conclusion runs counter to Cheatham’s direction to conduct a
comprehensive examination of the MOU. And it disregards the fact that the
parties bargained for the MOU as a single agreement.
¶36 Plaintiffs argue that the “release time provisions violate the
Gift Clause because the Union uses release time in ways that do not serve a
public purpose at all, and the City is not receiving direct, contractually
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GILMORE, et al. v. GALLEGO, et al.
Opinion of the Court
obligatory benefits in return for release time expenditures.” The release
time provisions in this MOU, however, do not materially differ from the
release time provisions in the Cheatham MOU. In Cheatham, the Arizona
Supreme Court declared that the “MOU, including its release time
provisions, serves a public purpose.” 240 Ariz. at 320 ¶ 23. Plaintiffs have
not shown that the use of release time varies in any significant way from
the MOU that Cheatham found was permissible, a decision binding on this
court. State v. Sullivan, 205 Ariz. 285, 288 ¶ 15 (App. 2003).
¶37 Nor do the MOUs in Cheatham and in this case differ such that
there was one agreement in the Cheatham MOU but two agreements in the
MOU here. See Dissent at ¶ 48. Although containing different terms and
covering different time periods, the Cheatham MOU is remarkably similar
to the MOU here. True, the Cheatham MOU discussed release time in a
Section defining the “Rights of Association,” while the MOU here does so
in a Section defining “Union Rights.” And the Cheatham MOU involved
1,583 release time hours, while there are 3,183 release time hours in the
MOU here. But both MOUs were two-party agreements between the City
and the City employees’ authorized representative (the Phoenix Law
Enforcement Association in Cheatham and the Union here). And both were
signed by (1) an Association or Union representative; (2) a City Labor
Relations Representative and (3) the City Manager. Each MOU constitutes
a single agreement.
¶38 Apart from Cheatham, the record shows that the release time
provisions were bargained for as a part of the Unit II compensation. On
behalf of Unit II employees, the Union bargained for the release time
provisions as part of the total compensation package, including agreeing to
receive paid release time in lieu of eight additional hours of vacation time,
which is undoubtedly a benefit. See Cheatham, 240 at 322 ¶ 34 (explaining
vacation time is a benefit). Unit II employees also approved, and are bound
by, the MOU. Because the City’s promise to pay for release time in exchange
for Unit II’s agreement to work under the wages, hours and conditions
specified in the MOU constitutes adequate consideration, applying the
directives set forth in Cheatham, it does not violate the Gift Clause even
though the MOU at issue here lacks the phrase “in lieu of wages and
benefits.” See id. at 322 ¶ 32.
¶39 The consideration received by the City in exchange for the
release time provisions provided for in the MOU are direct benefits. The
Dissent [at ¶ 51] states that the City receives valueless “anticipated indirect
benefits at best.” Again, however, as in Cheatham, the City receives the
direct benefit of being able to impose obligations on both the Union and
Unit II employees in exchange for the promise to pay release time. Put
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GILMORE, et al. v. GALLEGO, et al.
Opinion of the Court
another way, under the MOU, the City receives the services of about 1,500
skilled tradespeople. As Cheatham directs, “[t]he pertinent issue for a Gift
Clause analysis is not whether a particular expenditure is the only way to
achieve a public purpose, but instead whether a comprehensive
examination of the agreement reveals that the expenditure is grossly
disproportionate to the benefit the public receives.” 240 Ariz. 322 ¶ 34. The
consideration received by the City is “the work the employees generally
agree to provide under the agreement.” See id. at 322 ¶ 31. And as directed
in Cheatham, in construing an MOU with nearly identical release time
provisions, “the consideration received by the City is not indirect benefits,
but instead the obligations the MOU itself imposes on both [the Union] and
the Unit” employees. Id. at 324 ¶ 42.
¶40 The financial analysis here is akin to what Cheatham, as
modified by Schires, found did not violate the Gift Clause. See id. at 322 ¶ 33.
The City annually pays $160 million in total compensation for its 1,500 Unit
II employees. Plaintiffs do not argue the total annual cost is grossly
disproportionate or far exceeds the services provided by the Unit II
employees, or that the cost far exceeds what is received in return. The
annual cost of release time is $499,000, representing about 0.31% of the total
compensation and about $333 annually per unit member. These ratios are
akin to the MOU that Cheatham upheld, where the cost of release time was
about 0.26% of the total compensation and about $322 annually per unit
member. See id. Viewed in the context of the MOU overall -- taking a
“panoptic view” -- plaintiffs have not shown that the cost to the City of the
paid release time is grossly disproportionate or far exceeds the value of
what the Union and Unit II employees have agreed to provide to the City
in return. See id.¶41 The Dissent [at ¶ 51] states the City has failed to “provide[]
any evidence of an objective fair market value of these claimed benefits.”
Plaintiffs, however, had the burden to show the City’s cost of release time
under the MOU far exceeds the value the City receives. See Schires, 250 Ariz.
at 378 ¶ 22. Plaintiffs failed to do so. Nor did they claim that more discovery
was needed before the superior court could decide the competing motions
for summary judgment. See Ariz. R. Civ. P. 56(d). Thus, applying these
cases, because the release time provisions in the MOU serve a public
purpose and are supported by sufficient consideration, the superior court
did not err in concluding the MOU does not violate the Gift Clause.
15
GILMORE, et al. v. GALLEGO, et al.
Opinion of the Court
V. Defendants Were Not Eligible for an Award of Attorneys’ Fees
Under A.R.S. § 12-341.01.
¶42 Plaintiffs claim the superior court erred in concluding this is
a “contested action aris[ing] out of a contract” and awarding defendants
more than $355,000 in attorneys’ fees. On appeal, plaintiffs claim that award
is contrary to law and should be vacated. “In any contested action arising
out of a contract, express or implied, the court may award the successful
party reasonable attorney fees.” A.R.S. § 12-341.01(A). Plaintiffs’ claims,
which have as their foundation the enforceability of the MOU’s release time
provisions, at least arguably fall within that statute. This court, however,
does not write on a clean slate in considering this issue. See Wistuber, 141
Ariz. at 347. The Arizona Supreme Court has found that claims challenging
the constitutionality of actions of a public body, including under the Gift
Clause of Arizona’s Constitution, do not qualify for an award of fees under
A.R.S. § 12-341.01. Id. at 350.
¶43 In Wistuber, the court rejected a claim that a governmental
entity succeeding in a Gift Clause challenge like the one here was eligible
for an award of fees under A.R.S. § 12-341.01. Id. at 350. The plaintiffs in
Wistuber brought a declaratory judgment action claiming release time
provisions in a collective bargaining agreement between a school and a
teachers’ association violated the Gift Clause. Id. at 347. The superior court
rejected the challenge and, in upholding that ruling, the Arizona Supreme
Court rejected the school’s claim it was entitled to attorneys’ fees under
A.R.S. § 12-341.01. See id. at 350. Wistuber did so reasoning that plaintiffs:
are challenging the constitutionality of the
action of a public body. An award of attorney’s
fees would be contrary to public policy in this
case because it would have a chilling effect on
other parties who may wish to question the
legitimacy of the actions of public officials.
Where aggrieved citizens, in good-faith, seek a
determination of the legitimacy of
governmental actions, attorney’s fees should
not usually be awarded. Courts exist to hear
such cases; we should encourage resolution of
constitutional arguments in court rather than on
the streets.
Id. Applying Wistuber here, defendants are not entitled to an award of
attorneys’ fees under A.R.S. § 12-341.01.
16
GILMORE, et al. v. GALLEGO, et al.
Opinion of the Court
¶44 Defendants cite two more recent pension cases to suggest that
this court should not follow Wistuber. See Am. Fed’n of State Cnty. & Mun.
Emp. AFL-CIO Local 2384 v. City of Phx. (Local 2384), 249 Ariz. 105 (2020);
Piccioli v. City of Phx., 249 Ariz. 113 (2020). Those cases, however, involved
claims by pension plan participants that the City breached their
employment contracts and unconstitutionally impaired their vested rights
to pension benefits. See Local 2384, 249 Ariz. at 106–07 ¶¶ 4–5, 26; Piccioli,
249 Ariz. at 116 ¶¶ 6–7, 22. The court rejected plaintiffs’ claims on the
merits, finding no breach of their contractual rights and no unconstitutional
impairment. Local 2384, 249 Ariz. at 106–07 ¶¶ 4–5; Piccioli, 249 Ariz. at 116
¶¶ 6–7. Allowing an award of fees under A.R.S. § 12-341.01, the court noted
plaintiffs challenged government action “as parties to a contract rather than
as aggrieved citizens.” Local 2384, 249 Ariz. at 113 ¶ 33; Piccioli, 249 Ariz. at
119 ¶ 24. In doing so, the court left in place but distinguished Wistuber,
“which stated that courts should generally refrain from awarding fees
under § 12-341.01 against citizens who sue to challenge the legitimacy of
government action because it would ‘chill’ such suits.” Local 2384, 249 Ariz.
at 113 ¶ 33; Piccioli, 249 Ariz. at 119 ¶ 24. Given the nature of the claims here,
Wistuber controls, meaning defendants are not eligible for an award of fees
under A.R.S. § 12-341.01. As a result, the superior court’s award of
attorneys’ fees for defendants is vacated.4
CONCLUSION
¶45 The grant of summary judgment against plaintiffs Mark
Gilmore and Mark Harder and in favor of the City of Phoenix and the Union
on plaintiffs’ claims is affirmed. The award of attorneys’ fees against
plaintiffs and in favor of defendants is vacated. Defendants are awarded
their taxable costs on appeal contingent upon their compliance with
ARCAP 21.
4 There was no finding that plaintiffs’ claims in this case were “groundless
or frivolous” or were “brought for the purpose of harassing” the City,
exceptions to the prohibition for recovering fees under A.R.S. § 12-341.01
identified in Wistuber. 141 Ariz. at 350.
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GILMORE, et al. v. GALLEGO, et al.
Bailey J., concurring in part and dissenting in part
B A I L E Y, J., concurring in part and dissenting in part:
¶46 Though I join the rest of the majority decision, I respectfully
dissent from Part IV(B) because in my view the cost of the release time
provisions far exceeds the value, if any, of the direct benefits the City
receives in return, violating the Gift Clause. See Schires v. Carlat, 250 Ariz.
371, 376, ¶ 13 (2021).
¶47 Finding Cheatham controlling, the majority concludes the
City’s cost for release time does not far exceed the value of the work the
Unit II employees have agreed to provide in return. See supra, ¶ 36. But
Cheatham does not address the contractual arrangement presented in this
case. In Cheatham, the release time provisions were negotiated with the
police officers and their union “in lieu of increased wages and benefits” and a
“City[] negotiator[] testified without contradiction that if the City had not
agreed to pay for release time, the corresponding amounts would have
otherwise been part of the total compensation available” to the officers.
Cheatham v. DiCiccio, 240 Ariz. 314, 318-19, ¶ 14 (2016) (emphasis added).
The court therefore found the officers agreed to work under the MOU in
exchange for a compensation package that included release time and
concluded this agreement provided the City adequate consideration for its
release time payments. Id. at 322, ¶¶ 32-33.
¶48 But unlike in Cheatham, here there are essentially two
agreements: one with the city employees for their compensation and one
with the union for release time. This is because the release time provisions
are not a part of the compensation package for which Unit II employees
agreed to work. In fact, the MOU specifically excludes the union payments
from employee compensation. And the release time provisions were not
negotiated for in lieu of wages and benefits but were negotiated separately.
Despite the illusory term “total compensation,” both the City and the
majority recognize, “total compensation” is a term of art that describes the
City’s total cost for an MOU, not the Unit II employees’ bargained-for
compensation package. See supra, ¶ 13. Indeed, the City acknowledged
there are costs to the City “that would not be a part of the wages or benefits
of any City employees, but they still would be included in the total
compensation because they represent a cost to the City.” And the City’s
deputy budget and research director, who costed labor negotiations for this
MOU, reported that the total wages and benefits for Unit II employees
amounted to $140.5 million per year, not the “total compensation” cost of
$169 million per year.
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GILMORE, et al. v. GALLEGO, et al.
Bailey J., concurring in part and dissenting in part
¶49 The Unit II employees thus have not agreed to “work under
the wages, hours and conditions specified in the MOU—in exchange for [a]
compensation package [that] includes the release time provisions.”
Cheatham, 240 Ariz. at 322, ¶ 32. Because the compensation package Unit II
employees bargained for does not include release time, their promise to
work under the MOU cannot be consideration to support the City’s release
time payments. See Restatement (Second) of Contracts § 71(1) (1981) (“To
constitute consideration, a performance or a return promise must be
bargained for.”).
¶50 The City presents its arguments as though the MOU was one
agreement rather than two agreements housed in one document. The City
argues that if under the entire MOU, it receives sufficient consideration for
all its expenditures, there can be no Gift Clause violation and it is
inappropriate for courts to consider whether an individual MOU provision
is supported by adequate consideration. Not so. Though we take a panoptic
view of a labor agreement and do not consider its provisions in isolation,
Cheatham, 240 Ariz. at 321-22, ¶¶ 30-31, we treat each agreement
individually in determining whether its provisions are supported by
adequate consideration, see id. at 322, ¶ 33 (“The City’s payments for release
time are supported by consideration.” (emphasis added)). Here, the City’s
payments for release time are wholly separate from their agreement with
the Unit II workers. The release time provisions are in a stand-alone
agreement with the union.
¶51 The City argues it nonetheless receives adequate
consideration for its release time payments because under the MOU the
Union agreed to serve on various City committees and task forces and to
represent Unit II employees in grievances. But we do not defer to the City’s
assessment of value. Schires, 250 Ariz. at 378, ¶ 23. And the benefits the City
claims it receives from these agreements, such as avoiding lawsuits and
efficiently addressing labor concerns, are anticipated indirect benefits at
best, which are “valueless under [the] second prong” of the Gift-Clause
analysis because the Union has not provided an enforceable promise to
provide these benefits. Id. at 377, ¶ 16. Nor has the City provided any
evidence of an objective fair market value of these claimed benefits. Id. at ¶
23 (“In deciding the sufficiency of consideration under the second prong,
courts should . . . identify the fair market value of the benefit provided to
the entity and then determine proportionality.”). And though the majority
correctly notes the burden is on plaintiffs to show a Gift Clause violation,
see supra ¶ 40, the “City may not avoid scrutiny of a contractual obligation’s
value by providing insufficient detail to permit valuation,” Schires, 250
Ariz. at 378, ¶ 21.
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GILMORE, et al. v. GALLEGO, et al.
Bailey J., concurring in part and dissenting in part
¶52 The majority concludes that because the release time
provisions here do not “materially differ” from those in Cheatham, we are
bound to find the release time provisions here do not violate the Gift Clause.
See supra, ¶ 36. Though the release time provisions are substantially the
same as those in Cheatham, here the contractual arrangement regarding
those provisions is markedly different—the release time provisions were
not bargained for as part of the employees’ compensation package. And
Cheatham held that when taking a panoptic view of a labor agreement, if the
release time provisions were bargained for as part of the employees’
compensation package, then the employees’ promise to work under the
MOU’s terms is consideration to support the release time payments.
Cheatham, 240 Ariz. at 322, ¶ 32. Here the City removed the language linking
the release time payments and the employees’ compensation, thus ensuring
the City does not violate the free speech and association rights of non-union
member employees. See supra, ¶¶ 19-21. But without this link, the
agreement violates the Gift Clause.
¶53 In my view we are not bound to stretch Cheatham’s holding to
apply to the MOU here because the Unit II employees did not bargain for
the release time provisions as part of their compensation. Thus, here the
release time provisions are not supported by adequate consideration and
the cost to the City for release time far exceeds the value of the direct
benefits the City receives in return, violating the Gift Clause. See Schires, 250
Ariz. at 376, ¶ 13. I respectfully dissent.
AMY M. WOOD • Clerk of the Court
FILED: AA
20