Board of Trustees v. City of Omaha ( 2015 )

Nebraska Advance Sheets
BOARD OF TRUSTEES v. CITY OF OMAHA 993
Cite as 289 Neb. 993
Board Trustees of the City of Omaha Police
of
and Fire R etirement System, appellee, v.
City of Omaha, Nebraska, a municipal
corporation, et al., appellants.
___ N.W.2d ___
Filed January 30, 2015. No. S-13-956.
1. Summary Judgment. Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose that there is no genuine issue as to any
material fact or as to the ultimate inferences that may be drawn from those facts
and that the moving party is entitled to judgment as a matter of law.
2. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an
appellate court views the evidence in a light most favorable to the party against
whom the judgment is granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.
3. Declaratory Judgments: Appeal and Error. When a declaratory judgment
action presents a question of law, an appellate court has an obligation to reach its
conclusion independently of the conclusion reached by the trial court with regard
to that question.
4. Declaratory Judgments: Justiciable Issues. Declaratory judgments are avail-
able when a present actual controversy exists, all interested persons are parties to
the proceedings, and a justiciable issue exists for resolution.
5. Justiciable Issues. A justiciable issue requires a present, substantial controversy
between parties having adverse legal interests susceptible to immediate resolution
and capable of present judicial enforcement.
6. Declaratory Judgments: Justiciable Issues. A declaratory judgment action
cannot be used to determine the legal effects of a set of facts which are future,
contingent, or uncertain.
7. ____: ____. At the time that the declaration is sought, there must be an actual
justiciable issue from which the court can declare law as it applies to a given set
of facts.
8. Statutes: Appeal and Error. An appellate court does not consider a statute’s
clauses and phrases as detached and isolated expressions. Instead, the whole
and every part of the statute must be considered in fixing the meaning of any of
its parts.
9. Trusts. Trustees are generally required to exercise reasonable effort and diligence
in administering and monitoring a trust, with due attention to the trust’s objec-
tives and the interests of the beneficiaries. This may include obtaining competent
guidance and assistance, depending upon the circumstances.
10. Statutes: Words and Phrases. As a general rule, in the construction of stat-
utes, the word “shall” is considered mandatory and inconsistent with the idea
of discretion.
11. Statutes: Intent: Words and Phrases. While the word “shall” may render a
particular provision mandatory in character, when the spirit and purpose of the
legislation require that the word “shall” be construed as permissive rather than
mandatory, such will be done.
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994 289 NEBRASKA REPORTS
Appeal from the District Court for Douglas County: James
T. Gleason, Judge. Affirmed as modified in part, and in part
reversed and vacated.
John P. Passarelli and Matthew S. Noren, of Kutak Rock,
L.L.P., for appellants.
John R. Douglas and David A. Blagg, of Cassem, Tierney,
Adams, Gotch & Douglas, for appellee.
Heavican, C.J., Connolly, Stephan, McCormack, and
Cassel, JJ.
Stephan, J.
The City of Omaha’s home rule charter authorizes the city
council to establish a “pension and retirement system or sys-
tems” for city employees.1 The charter provides that the assets
and reserves of any such system shall constitute a “separate
and independent trust fund,” title to which shall be vested in
a board of trustees to be created by ordinance.2 Pursuant to
this authority, the Omaha City Council created the City of
Omaha Police and Fire Retirement System (the System) which
is administered by a board of trustees.3 The issues in this
declaratory judgment action brought by the board against the
City of Omaha and its mayor and city council (collectively the
City) are whether the board has authority to retain an actuarial
consultant and private legal counsel at city expense. The dis-
trict court for Douglas County determined the board had such
authority, and the City perfected this timely appeal and peti-
tioned to bypass the Nebraska Court of Appeals. We granted
the petition.
BACKGROUND
Pursuant to Omaha’s home rule charter,4 the Omaha City
Council enacted an ordinance creating
1
Omaha City Charter, art. VI, § 6.09 (1994).
2
Id., § 6.10.
 3
Omaha Mun. Code, ch. 22, art. III, §§ 22-61, 22-62, and 22-72 (2001).
4
Omaha City Charter, supra note 1, §§ 6.09 and 6.10.
Nebraska Advance Sheets
BOARD OF TRUSTEES v. CITY OF OMAHA 995
Cite as 289 Neb. 993
a separate and independent trust fund to be known as the
[S]ystem trust fund, title to which shall be vested in the
board of trustees and into which shall be paid all contri-
butions made under the [S]ystem by the members and the
city after the date of establishment of such fund, and from
which shall be paid all benefits provided by the [S]ystem,
including benefits to retired members, widows or widow-
ers, and children who began receiving benefits prior to
establishment of such fund.5
The ordinance authorizes the board to maintain a portion of
the fund in cash for the “payment of benefits and investment
expenses” and requires it to “invest and reinvest” all remain-
ing assets of the fund with “all investment income and losses
being credited to such fund.”6 The ordinance further provides
that the city finance director “shall make or approve all invest-
ments for the board.”7
The board consists of seven members. Three members
are elected from Omaha’s police and firefighter unions;
three members are representatives of the City, including the
finance director, the human resources director, and a member
of the city council; and the seventh member is not associ-
ated with the City or the unions and is elected by the other
six members.
Under the Omaha home rule charter, the board “shall formu-
late policy for the [S]ystem and shall supervise its operation.”8
Also pertinent to the issues presented in this case is § 22-69 of
the Omaha Municipal Code,9 which provides:
Subject to the board of trustees, the management of
the [S]ystem shall be directed by the following officers,
to whom shall be delegated the indicated responsibilities:
(a) The city finance director shall be the administrative
head of the [S]ystem and shall approve all investments of
the retirement fund.
5
Omaha Mun. Code, supra note 3, § 22-72.
6
Id.
7
Id.
8
Omaha City Charter, supra note 1, § 6.10.
9
Omaha Mun. Code, ch. 22, art. III, § 22-69 (2002).
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996 289 NEBRASKA REPORTS
(b) The city attorney shall be the legal advisor to
the board.
(c) The county treasurer shall be the treasurer of
the [S]ystem.
(d) The board, subject to applicable personnel regu-
lations, may employ an actuary. The actuary shall act
as technical advisor to the board on matters regarding
operation of the [S]ystem, and shall recommend mortal-
ity tables, interest rates, discontinuance tables, and any
other tables necessary for any investigation or valuation
to be made of the [S]ystem, which tables and interest
rates shall be subject to the approval of the board. The
actuary shall make such investigation and valuation at
such times as may be requested by the board, but at least
once in each five-year period. The actuary shall act at all
times as technical advisor to the board in such matters as
it may request.
(e) The board, in administering the [S]ystem, may
utilize the services of existing city departments and
personnel as are required for the proper operation of
the [S]ystem.
In September 2011, the board voted to retain a private law
firm to research whether the board had an “obligation to retain
counsel separate from the Omaha City Attorney’s office for
advice when the City or Unions are involved.” Subsequently,
the city attorney sent a memorandum to the board, stating that
because the city attorney is designated by § 22-69 as its legal
advisor, the board lacked authority to retain outside counsel
unless the city attorney had a conflict of interest. The city
attorney further advised the board that in the absence of a con-
flict, any costs incurred in retaining outside counsel would not
be considered an appropriate administrative expense payable
from the City’s general fund.
At a June 2012 meeting, the board considered two law firms
and selected one of them as “the Board’s potential outside
counsel.” The city finance director was present at this meeting
and opined that based upon the city attorney’s memorandum,
no money from the City’s general fund could be used to pay
outside legal counsel retained by the board.
Nebraska Advance Sheets
BOARD OF TRUSTEES v. CITY OF OMAHA 997
Cite as 289 Neb. 993
At the same meeting, the board discussed hiring the board’s
actuarial consultant to conduct a study of disability benefits
paid by the System. The board believed this study was neces-
sary because the System was “underfunded” and seemed to be
paying out disproportionately higher disability benefits than
other pension funds of comparable size. The board wanted the
study to help determine whether it should “petition the [C]ity
or the units to change the contract or the statutes.” One mem-
ber noted the recommendation of the city finance director that
the City would not pay for the study. Nevertheless, on a 4-to-2
vote with one abstention, the board voted to hire its actuary “in
order to conduct an investigation/best practices review of our
disability benefits and component and the administration and
policies to compare them to other comparable police and fire
pension plans.”
The board then commenced a declaratory judgment action
against the City in which it asked the district court to (1) con-
strue Omaha’s home rule charter and applicable ordinances to
authorize the board to retain consultants and independent legal
counsel and (2) declare that the expenses associated with such
retention would be administrative expenses payable from the
City’s general fund. After the City filed an answer asserting
various defenses, the board moved for summary judgment.
The district court sustained the board’s motion. It deter-
mined there was a justiciable controversy in that there was an
actual dispute between the parties which could be resolved by
construction of applicable city ordinances. The court deter-
mined the board was authorized under § 22-69 to hire outside
consultants and independent legal counsel. It reasoned that to
fulfill its fiduciary duties to the beneficiaries of the fund, the
board had “the discretion to hire outside consultants to the
extent that such consultants are necessary for the Board to
effectively ‘formulate policy for’ and ‘supervise’ the ‘opera-
tion’ of the System.” The court qualified its holding by stating
that in the exercise of this discretionary authority, the board
“may not act in a manner that is unreasonable, arbitrary, capri-
cious, or motivated by anything other than an obligation to
faithfully perform its fiduciary duties to the beneficiaries of
the System.”
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The court also determined the board was authorized to hire
independent legal counsel to the extent such counsel is neces-
sary to “formulate policy for” and “supervise” the “operation”
of the System, so long as the board does not operate in a man-
ner that “is unreasonable, arbitrary, capricious, or motivated
by anything other than an obligation to faithfully perform its
fiduciary duties.” The court based this determination on the
board’s fiduciary duties to the beneficiaries of the System and
concluded the language of § 22-69 did not limit the board’s
discretionary authority to retain outside counsel.
Finally, the court determined the costs associated with
hiring outside counsel and consultants were administrative
expenses under § 22-71 of the Omaha Municipal Code.10 The
district court reasoned the City had an obligation to pay for
consultants and legal counsel retained by the board based on
the plain and unambiguous language of the ordinance stating
that “‘[a]ll costs and expenses incurred in the administration
of the [S]ystem shall be paid by the [C]ity by appropriation
from the general fund . . . .’”11 It reasoned that these would
not be administrative expenses if the City showed that “the
Board acted in a manner that was unreasonable, arbitrary,
capricious, or motivated by anything other than an obligation
to faithfully perform its fiduciary duties to the beneficiaries of
the System.”
ASSIGNMENTS OF ERROR
The City assigns, restated and consolidated, that the district
court erred in (1) finding that Omaha City Charter § 6.10 and
Omaha Mun. Code §§ 22-69 and 22-72 grant the board discre-
tion to hire outside consultants and independent legal counsel
and (2) finding that Omaha Mun. Code § 22-71 requires the
City to pay expenses incurred by the board in hiring outside
consultants and independent legal counsel without the City’s
prior authorization.
10
Omaha Mun. Code, ch. 22, art. III, § 22-71 (2001).
11
Id.
Nebraska Advance Sheets
BOARD OF TRUSTEES v. CITY OF OMAHA 999
Cite as 289 Neb. 993
STANDARD OF REVIEW
[1,2] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose that there is no gen­
uine issue as to any material fact or as to the ultimate infer-
ences that may be drawn from those facts and that the moving
party is entitled to judgment as a matter of law.12 In reviewing
a summary judgment, an appellate court views the evidence in
a light most favorable to the party against whom the judgment
is granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.13
[3] When a declaratory judgment action presents a question
of law, an appellate court has an obligation to reach its conclu-
sion independently of the conclusion reached by the trial court
with regard to that question.14
ANALYSIS
Justiciable Controversy
[4-7] Declaratory judgments are available when a present
actual controversy exists, all interested persons are parties to
the proceedings, and a justiciable issue exists for resolution.15
A justiciable issue requires a present, substantial controversy
between parties having adverse legal interests susceptible to
immediate resolution and capable of present judicial enforce-
ment.16 A declaratory judgment action cannot be used to deter-
mine the legal effects of a set of facts which are future, contin-
gent, or uncertain.17 At the time that the declaration is sought,
12
City of Omaha v. City of Elkhorn, 276 Neb. 70, 752 N.W.2d 137 (2008);
Hofferber v. City of Hastings, 275 Neb. 503, 747 N.W.2d 389 (2008).
13
Id.
14
Davenport Ltd. Partnership v. 75th & Dodge I, L.P., 279 Neb. 615, 780
N.W.2d 416 (2010); Berens & Tate v. Iron Mt. Info. Mgmt., 275 Neb. 425,
747 N.W.2d 383 (2008).
15
See Boyles v. Hausmann, 246 Neb. 181, 517 N.W.2d 610 (1994).
16
Professional Firefighters Assn. v. City of Omaha, 282 Neb. 200, 803
N.W.2d 17 (2011).
17
Boyles, supra note 15.
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there must be an actual justiciable issue from which the court
can declare law as it applies to a given set of facts.18
The parties do not dispute the determination of the district
court that this case presents a justiciable controversy which is
capable of judicial resolution in the form of a declaratory judg-
ment. We agree that a justiciable controversy exists, but we
view it as being narrower than characterized by the parties and
the district court. The district court defined the legal issue as
whether the board has authority “to hire outside consultants and
independent legal counsel” at the City’s expense. The phrase
“outside consultants” could encompass a wide variety of pro-
fessional disciplines. But the actual dispute between the parties
is more narrowly focused on (1) the authority of the board to
retain an actuarial consultant to undertake a study of disability
benefits paid by the System and retain independent legal coun-
sel and (2) whether the costs of such actions are administrative
expenses. We therefore address only those issues.
Nature of Entity
It is first necessary to determine the nature of the board
as an entity. We agree with the City that the board is not a
separate and distinct political subdivision. But we cannot agree
with its argument that the board is “merely an administrative
agent of the City.”19
The Omaha home rule charter provides that the assets and
reserves of a pension and retirement system established by
the City shall be a “separate and independent trust fund” and
that the board “shall formulate policy for the [S]ystem and
shall supervise its operation.”20 From this language, it is clear
that the board serves as a trustee of the assets of the System.
Its responsibility, fiduciary in nature, is owed to current and
former city employees who are beneficiaries of the trust fund,
not to the citizenry as a whole, as would be the case if it
were an administrative agency.21 Yet the board is not entirely
18
Id.
19
Reply brief for appellants at 4.
20
Omaha City Charter, supra note 1, § 6.10.
21
See, generally, Neb. Rev. Stat. § 30-3867(a) (Reissue 2008).
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BOARD OF TRUSTEES v. CITY OF OMAHA 1001
Cite as 289 Neb. 993
i­ndependent of the City, because the scope of its responsi-
bilities are defined by the City’s charter provisions and ordi-
nances applicable to the System.
Authority to R etain
Actuarial Consultant
Section 22-42(f) of the Omaha Municipal Code specifically
authorizes the board to “employ an actuary” who “shall act as
a technical advisor to the board on matters regarding the opera-
tion of the [S]ystem.” Section 22-42(f) describes specific func-
tions to be performed by the actuary, and then states that “[t]he
actuary shall act at all times as technical advisor to the board
on such matters as it may request.”
[8] An appellate court does not consider a statute’s clauses
and phrases as detached and isolated expressions. Instead, the
whole and every part of the statute must be considered in fix-
ing the meaning of any of its parts.22 Reading the ordinance
based on these principles, we conclude it authorizes the board
to seek technical assistance from an actuary on matters which
are not specifically enumerated. But we agree with the district
court that the board’s utilization of an actuary must be neces-
sary for the board to effectively perform its duties under the
Omaha home rule charter to “formulate policy for” and “super-
vise [the] operation” of the System.23 Likewise, we agree with
the holding of the district court that in requesting technical
assistance from an actuary, “the Board may not act in a manner
that is unreasonable, arbitrary, capricious, or motivated by any-
thing other than an obligation to faithfully perform its fiduciary
duties to the beneficiaries of the System.”24
The record reflects that the System was underfunded and
that the board perceived it was its duty as a fiduciary of the
System to monitor unfunded liabilities. The board had infor-
mation that unusually high disability payments, compared to
other pension funds of similar size, could be contributing to the
problem. As one board member explained,
22
Fisher v. PayFlex Systems USA, 285 Neb. 808, 829 N.W.2d 703 (2013).
23
Omaha City Charter, supra note 1, § 6.10.
24
See Bass v. County of Saline, 171 Neb. 538, 106 N.W.2d 860 (1960).
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We had more officers and fire personnel out on disabil-
ity pensions than other similarly-sized funds. We wanted
to find out whether it was a problem with our statu-
tory scheme or the contracts that were being negotiated
between the city and the unions.
But we wanted to figure out why our disability pay-
ments were so high. Did we need to be doing something
to see if officers or fire personnel could go back to work
after they went out on a disability pension?
That’s why we wanted to retain our actuary, to do this
analysis, and get back to us so that we could then as a
board petition the city or the units to change the contract
or the statutes. We don’t participate in those negotiations,
except as an independent body. We could petition for
a change.
[9] We conclude this proposed utilization of an actuarial
consultant fell within the scope of the board’s obligation to
formulate policy and supervise the operation of the fund.
Certainly, the future financial viability of the fund was a mat-
ter of legitimate concern to the board, and it was reasonable
for it to request an actuarial analysis of a specific aspect of the
System’s operation which could affect such viability. It was
also reasonable for the board to seek the assistance of an actu-
ary in order to have an accurate and complete understanding
of the potential problem before recommending any contractual
or legislative solutions. Trustees are generally required “to
exercise reasonable effort and diligence” in administering and
monitoring a trust, with “due attention to the trust’s objec-
tives and the interests of the beneficiaries.”25 This may include
“obtaining competent guidance and assistance,” depending
upon the circumstances.26
The City argues that if the board has authority to retain an
actuarial consultant, the board must pay for the consultant,
because the retention is an investment expense, not an admin-
istrative expense. The City relies on § 22-71, which states:
“All costs and expenses incurred in the administration of the
25
Restatement (Third) of Trusts § 77, comment b. at 82 (2007).
26
Id. at 83.
 Nebraska Advance Sheets
BOARD OF TRUSTEES v. CITY OF OMAHA 1003
Cite as 289 Neb. 993
[S]ystem shall be paid by the [C]ity by appropriation from the
general fund; provided, however, that investment expenses
may be charged to income or principal of the retirement fund
in accordance with accepted general accounting princip[le]s
for such funds.”
We agree with the district court that the cost associated with
the actuarial study sought by the board is an administrative
expense, not an investment expense. As we have noted, the
study falls within the board’s responsibility under the home
rule charter to “formulate policy for the [S]ystem” and “super-
vise its operation.”27 We agree with the district court that “the
City cannot refuse to pay such expenses absent a showing that
the Board acted in a manner that was unreasonable, arbitrary,
capricious, or motivated by anything other than an obligation
to faithfully perform its fiduciary duties to the beneficiaries of
the System.”28
Authority to R etain Counsel
The question whether the board has discretionary authority
to retain outside legal counsel turns on language in § 22-69,
which provides that “[s]ubject to the board of trustees . . .
[t]he city attorney shall be the legal advisor to the board.”
(Emphasis supplied.) The district court found that “subject to”
gave the board discretion to use the city attorney. The court
reasoned that “shall” was a mandate requiring the city attorney
to provide legal advice to the board, subject to the board’s dis-
cretion, not a mandate that the board use the city attorney as a
legal advisor.
The City argues that “subject to” should not be construed
to give the board absolute discretion to use the city attorney
as a legal advisor. Instead, the City argues the more sensible
construction of “subject to” in this case is that the city attorney
shall provide legal advice to the board under the general direc-
tion and control of the board.
We have held that the expression “subject to” is a term of
qualification which acquires its meaning from the context in
27
Omaha City Charter, supra note 1, § 6.10.
28
See Bass, supra note 24.
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which it appears.29 In State, ex rel. Johnson, v. Tilley,30 we held
that “subject to” in the context of approval of expenditures
meant the attorney general had the discretionary power to
approve the expenditure of the fund. We defined “subject to” as
being “‘dependent upon; . . . limited by; . . . under the control,
power, or dominion of.’”31
[10,11] As a general rule, in the construction of statutes, the
word “shall” is considered mandatory and inconsistent with
the idea of discretion.32 While the word “shall” may render a
particular provision mandatory in character, when the spirit
and purpose of the legislation require that the word “shall”
be construed as permissive rather than mandatory, such will
be done.33
An Illinois appellate court construed a similar provision in
People ex rel. Todd v. Board of Education.34 There, a school
board and its attorney disputed the meaning of a statute which
provided that the school board shall appoint “‘an attorney, who
shall have general charge and control, subject to the approval of
the board, of the law department and the employees therein.’”35
The court rejected the school board’s argument that the phrase
“‘subject to’” gave the board absolute and uncontrolled power
to manage the law department over the objections of the attor-
ney.36 The court concluded the attorney’s authority to manage
the law department in accordance with the general policies of
the board was not subject to the absolute control and direction
of the board.
29
Bulger v. McCourt, 179 Neb. 316, 138 N.W.2d 18 (1965).
30
State, ex rel. Johnson, v. Tilley, 137 Neb. 173, 288 N.W. 521 (1939).
31
Id. at 178, 288 N.W.2d at 523.
32
Spradlin v. Dairyland Ins. Co., 263 Neb. 688, 641 N.W.2d 634 (2002);
State on behalf of Minter v. Jensen, 259 Neb. 275, 609 N.W.2d 362 (2000).
33
State ex rel. Parks v. Council of City of Omaha, 277 Neb. 919, 766 N.W.2d
134 (2009); Troshynski v. Nebraska State Bd. of Pub. Accountancy, 270
Neb. 347, 701 N.W.2d 379 (2005); State on behalf of Minter, supra
note 32.
34
People ex rel. Todd v. Board of Education, 258 Ill. App. 271 (1930).
35
Id. at 276.
36
Id. at 279.
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Although this case presents a different context, we reach
a similar result. Section 22-69 is a clear legislative statement
that the city attorney shall be the legal advisor to the board.
The fact that the city attorney is required to perform this
function “[s]ubject to the board of trustees” simply delineates
the attorney-client relationship and requires that the city
attorney work under the general direction and control of the
board. We construe the ordinance to mean the board must
utilize the city attorney as its legal advisor under its general
direction unless there is a conflict of interest which prevents
the city attorney from serving in that capacity. We deem the
record is insufficient to determine whether such a conflict
exists in the circumstances of this case. We therefore do not
address that issue, which was likewise not addressed by the
district court.
CONCLUSION
We conclude that the district court was without jurisdic-
tion to determine the authority of the board to retain outside
consultants other than an actuary, given the absence of a jus-
ticiable controversy as to the broader issue. But we conclude
that the district court did not err in determining that the board
had legal authority to retain an actuary to undertake a study of
disability benefits paid from the System’s trust fund and that
the cost of such study is an administrative expense payable
by appropriation from the City’s general fund. Thus, as to the
issue of the board’s authority to retain consultants, we affirm
the judgment as modified. We reverse and vacate that portion
of the judgment of the district court declaring that the board
has discretion to hire independent legal counsel whenever it
deems such retention to be necessary.
Affirmed as modified in part, and
in part reversed and vacated.
Wright and Miller-Lerman, JJ., not participating.