THE CITY OF PONTIAC RETIRED EMPLOYEES ASSOCIATION DELMER ANDERSON THOMAS HUNTER HENRY SHOEMAKER YVETTE TALLEY DEBRA WOODS v. LOUIS SCHIMMEL INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY AS EMERGENCY MANAGER OF THE CITY OF PONTIAC CATHY SQUARE INDIVIDUALLY AND IN HER OFFICIAL CAPACITY AS THE DIRECTOR OF HUMAN RESOURCES AND LABOR RELATIONS FOR THE CITY OF PONTIAC CITY OF PONTIAC (2021)

OPINION AND ORDER GRANTING PLAINTIFFS' MOTION TO ENFORCE CONSENT JUDGMENT

In this class proceeding, the plaintiffs move to enforce a payment provision of a consent judgment entered by the Honorable Avern Cohn in 2018. The consent judgment resolved a dispute between the City of Pontiac and its former employees over the continuation of retiree health benefits by, among other things, establishing a new trust to provide health benefits for the City's retirees. The sole controversy presented here is by what date the City must pay to the new trust $176,000 in seed money. The plaintiffs contend that the initial funding was to be completed by November 9, 2020, according to the operative provision of the consent judgment. The City, however, believes that it is not obligated to pay the money until June 29, 2021, which it has calculated as 90 days after the date of termination of the former municipal retirement plan, which is the funding benchmark provided by the terms of a Trust Agreement that was executed in March 2020 by the City and the newly seated trustees, but not by the plaintiffs.

The plain terms of the consent judgment favor the plaintiffs' position. The plaintiffs were not parties to any post-settlement trust agreement, which the City relies on for its argument that a later payment date applies. And the plaintiffs have not waived their right to enforce the consent judgment as entered.

I.

The basic history of the case and the terms of the parties' 2018 settlement are not in question. In 2012, the City of Pontiac Retired Employees Association, along with several of its members, sued the City and then Emergency Manager (EM) Louis Schimmel. The plaintiffs proceeded on behalf of themselves and around 1,500 municipal retirees in a challenge to the EM's order substituting a temporary monthly fixed benefit premium assistance payment in lieu of the City's previous guarantee of lifetime retiree health coverage, which was to be reduced and eventually eliminated. Judge Lawrence Zatkoff denied a motion for preliminary injunction, but that ruling was reversed on appeal. Judge Cohn inherited the case on remand, and he subsequently presided over several years of intense negotiations between the parties.

In March 2017, with the aid of a mediator, the parties finally hammered out an agreement by which the City would be relieved of any perpetual obligation to provide healthcare, in exchange for its commitment to fund the establishment of a new retiree benefit trust fund, with the seed money for the new fund to be provided largely by liquidation of the former retiree benefit plan. As relevant here, the City was obligated to make an initial payment of $4,250,000, with further annual payments to follow, if further funding was determined to be necessary by an ongoing actuarial assessment. Judge Cohn certified a settlement class consisting of most of the City's retirees, but excluding former employees of Pontiac General Hospital, whose employee association had attempted to intervene in the case. He later granted a motion to approve a proposed consent judgment after rejecting the objections of a handful of class members and a challenge to the propriety of the settlement by the hospital retirees. The approved consent judgment was entered by the Court on November 19, 2018.

While this case was pending, a separate suit was filed in state court by the City's retired police officers and firefighters, who made up a subset of the class of retirees in this case. The consent judgment acknowledged the existence of that suit, and it provided that any payments made to settle the claims in that case would be credited against the City's funding obligations assumed under the settlement in this case. The state lawsuit eventually was resolved by a similar agreement, and, in July 2019, judgment entered in the state court awarding $4,073,000 to the police and fire retiree benefit fund. The parties here concur that the judgment recovery in the separate litigation properly was deemed to satisfy the lion's share of the City's initial $4.25 million funding obligation under the terms of the consent judgment in this case. Presently in question, however, is the deadline for the City's remittance of the remaining approximately $176,000 in initial funding that was called for by the consent judgment.

The terms of the consent judgment were spelled out in the parties' settlement agreement, which was made part of the record in this case and incorporated by reference into the consent judgment. The parties to the settlement agreement were identified as the City of Pontiac Retired Employees Association; the individuals named as plaintiffs and class representatives in this case, acting on behalf of themselves and absent members of the settlement class; the City of Pontiac; and its officials who were named as defendants. The agreement provided that the historical Pontiac General Employees Retirement System Pension Plan (“GERS”) would be terminated, and a new plan would be created and funded with assets equal to 130% of the liabilities of the old plan. Any assets from the GERS liquidation in excess of 130% of plan liabilities were to be rolled over into a Voluntary Employee Beneficiary Association Plan (the “New VEBA Plan”), governed by Section 501(c)(9) of the Internal Revenue Code. That New VEBA Plan then would provide for ongoing retiree health benefits, and the City would be absolved of any perpetual obligation to supply the same. The City agreed that it would seek an IRS determination that the New VEBA Plan was appropriately constituted for tax-exempt status, and, upon receiving IRS approval, that it would pay initial funding into the plan trust fund. The agreement further stated:

[The City of Pontiac] shall make an initial contribution to the New VEBA Plan of $4,250,000. This initial contribution shall be due within ninety (90) days of either the date the New VEBA Plan is approved by the Internal Revenue Service, or the date that the New VEBA Plan is created, whichever comes later in time.

The same provision of the agreement acknowledged the police and firefighters' litigation and provided for the offset of any settlement funds paid by the City in that case. Finally, the agreement stated that it would be governed by federal law and Michigan state law, as applicable, and that it “may not be modified except in writing signed by or on behalf of all parties and, as necessary, with Court approval.”

On July 31, 2019, judgment was entered in favor of the plaintiffs in the separate state court litigation, City of Pontiac Police and Fire Retirees Prefunded Group Health and Insurance Trust v. City of Pontiac, No. 12-128625 (Oakland Cty. Cir. Ct.). That judgment awarded the police and firefighter retirement trust funds $4,073,974.61. The parties agree that the judgment recovery in the state litigation properly was credited toward the City's funding obligations under the settlement in this case.

On March 23, 2020, the City of Pontiac and the appointed trustees of the New VEBA Plan executed a Trust Agreement establishing the new benefit plan's trust fund. The “parties” to the trust agreement were identified as the City and the appointed trustees or their successors. The Trust Agreement stated that the City would make an immediate payment of $100 to the fund, and it further provided that “the City shall make an initial contribution to the Trust Fund of up to $4,250,000, as required by Settlement Agreement § 8.a, within ninety (90) days of the later of the IRS Approval Date and the GERS Approved Termination Date.” The “GERS Approved Termination Date” was defined as the “date on which the GERS' application for determination of plan termination (IRS Form 5310) is approved by the Internal Revenue Service.” It is undisputed that the GERS termination date that was approved by the IRS and subsequent codified by a recently enacted City ordinance is March 31, 2021. The City reckons its payment deadline as being 90 days thereafter, or June 29, 2021.

It also is undisputed that the IRS approved the tax-exempt status of the New VEBA Plan on August 9, 2020. Based on the terms of the 2018 consent judgment, the plaintiffs calculate the initial funding deadline as 90 days from that date, or November 9, 2020.

II.

The plaintiffs argue that they are entitled to enforce the consent judgment as written, and, with the approval of the New VEBA Plan, the funding date must be November 9. The City believes that the issue presented is simple and requires the Court merely to consult the date that the trustees of the New VIBA signed the Trust Agreement and figure 90 days thereafter for the funding deadline. It asserts that the trust declaration which it executed in March 2020 is a “contract” that subsumes and overrides the terms of the previously executed settlement agreement. The City also argues that the plaintiffs “waived the entire payment provision” of the consent judgment by accepting the deposit of $4.2 million into a new Police and Fire VEBA. The applicable law does not favor the City's position.

“ ‘A consent decree has attributes of both a contract and of a judicial act.’ ” Evoqua Water Techs., LLC v. M.W. Watermark, LLC, 940 F.3d 222, 229 (6th Cir. 2019), cert. denied, 140 S. Ct. 2762 (2020) (quoting Williams v. Vukovich, 720 F.2d 909, 920 (6th Cir. 1983)). “ ‘Consent decrees are entered into by parties to a case after careful negotiation has produced agreement on their precise terms.’ ” Ibid. (quoting United States v. Armour & Co., 402 U.S. 673, 681 (1971)). “ ‘[T]he scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it.’ ” Ibid. (quoting Armour, 402 U.S. at 682). “The consent decree is a judicial act because it ‘places the power and prestige of the court behind the compromise struck by the parties.’ ” Ibid. (quoting Williams, 720 F.2d at 920). Accordingly, the Court “must ‘protect the integrity of the decree with its contempt powers.’ ” Ibid.

“In the absence of controlling federal law, contractual interpretation of [a] [c]onsent [j]udgment is governed by [state] law,” and “[u]nder Michigan law, ‘[t]he primary goal in the construction or interpretation of any contract is to honor the intent of the parties.’ ” Ibid. (quoting Rasheed v. Chrysler Corp., 445 Mich. 109, 127 n.28, 517 N.W.2d 19, 29 n.28 (1994)). “A court ‘must look for the intent of the parties in the words used in the instrument.’ ” Ibid. (quoting Michigan Chandelier Co. v. Morse, 297 Mich. 41, 49, 297 N.W. 64, 67 (1941)). “[D]istrict courts retain jurisdiction to enforce their own orders, including [consent judgments entered by their authority].” City of Highland Park v. EPA, 817 F. App'x 42, 51 (6th Cir. 2020) (citing Pedreira v. Sunrise Children's Servs., Inc., 802 F.3d 865, 871 (6th Cir. 2015) (“[W]hen a court enters a consent decree, it retains jurisdiction to enforce the decree.”)).

The City is right about one thing — the question presented by this motion is simple, and it is simply resolved by a straightforward reading of the settlement agreement. That agreement required payment of $4.25 million by the City within 90 days after the IRS approved the tax-exempt status of the New VEBA Plan. The approval was issued on August 9, 2020. That started the 90-day clock, requiring the City's payment in full (including the remainder of $176,000) by November 9, 2020. There is no dispute about the relevant timeline or the plain import of the operative provision of the settlement agreement, which was given binding force by the Court's entry of the consent judgment that concluded this case.

The City contends that a subsequent “contract” in the form of the trust declaration superseded and nullified the deadline specified by the parties' settlement. But a “trust” is not a “contract” — even though a trust sometimes may be created by the terms of a related contractual agreement. The settlement agreement here expressly provides — in terms which are plain and undisputed — that it can be modified only by written agreement of “the parties” to the settlement, and with the Court's approval. The City has not pointed to any written agreement for a modification of the deadline that was executed by the parties to the settlement. Court approval for any such alteration certainly has not been sought or granted. The “parties” to the declaration of trust were the City itself and the designated trustees; none of the plaintiffs or any other parties to this litigation endorsed that trust instrument.

It is a basic principle of trust law that the nature of a trust is not a bilateral exchange of promises between parties, but a unilateral declaration by the settlor that consigns its property to a trustee for the benefit of another. See In re Peter & Lois O'Dovero Irrevocable Trust, No. 346896, 2020 WL 2501463, at *2 (Mich. Ct. App. May 14, 2020) (“ ‘It is a general principle of trust law that a trust is created only if the settlor manifests an intention to create a trust, and it is essential that there be an explicit declaration of trust accompanied by a transfer of property to one for the benefit of another.’ ”) (quoting Osius v. Dingell, 375 Mich. 605, 613, 134 N.W.2d 657, 660 (1965)), appeal denied, 949 N.W.2d 696 (Mich. 2020); see also In re Certified Question, 447 Mich. 765, 791 n.31, 527 N.W.2d 468, 480 n.31 (1994) (“A sufficient declaration of trust is essential to the creation of an express or voluntary trust, which ․ when the statute so requires, must be in writing. Such trusts are generally created by an instrument or instruments pointing out directly and expressly the property, persons, and purpose of the trust, or by an agreement or contract between the parties expressing the intended trust. The declaration must contain sufficient words to create the trust, and it must embody all the essential elements of a trust. It must express the intention to create a trust ․ and state with certainty the terms, subject, persons, and object of the trust; and it has been stated that the trustee must be authorized and directed to perform certain duties and assume certain obligations. A trust is not created unless the settlor imposes enforceable duties on the transferee.”); c.f., Vector Envtl. Grp., Inc. v. Fifth Third Bank, No. 290844, 2010 WL 3564830, at *6 (Mich. Ct. App. Sept. 14, 2010) (“[P]laintiff cannot show that an express trust exists because the dispute resolution agreement did not evidence an intent to create a trust, rather, it was a contractual agreement promising payment and specifying a time frame for payment.”). The construction of a writing that creates a trust contemplates exclusively the intent of the settlor; the intentions of the trustee, or potential beneficiaries, are irrelevant. Nixon v. Wilmington Trust Co., 543 F.3d 354, 356 (6th Cir. 2008) (“In trust construction cases, the settlor's intent controls the interpretation of the instrument.”) (emphasis added; applying Delaware law).

The City's position in opposing the motion essentially is that by its unilateral endorsement of the “trust agreement” it was empowered, by fiat, to modify according to its whim any terms of the bilateral obligations imposed by the consent judgment. It has not cited any legal authority supporting that position. The City relies primarily on Lawyers Title Insurance Corp. v. First Federal Savings Bank & Trust, 744 F. Supp. 778 (1990), where the court held that parties may at their will alter or amend a contract made between them, and that a subsequent agreement embracing the same subject matter but expressing different terms is deemed to supersede and nullify any inconsistent provisions of the earlier expressed agreement. But that case is distinguishable, and the premises of that holding are not satisfied. First, the “Trust Agreement” expressly identifies its “parties” as the City and the trustees of the new fund; the parties of the settlement agreement are manifold and disparate from the “parties” bound by the declaration of trust. Second, the “Trust Agreement” does not embrace anywhere near the entire subject matter of the consent judgment that resolved this case, and it therefore cannot reasonably be read as expressing any consent by any party to obsolete the terms of that settlement.

Moreover, to the extent that the terms of the settlement dictated requisites for creation of the trust, it is the bilaterally binding promises of the settlement — not the unilateral declaration of trust — that should control and supersede. Trusts are not contracts, but their attributes may be defined by the terms of a contract, where, as here, the contract plainly contemplates and expresses intent that a trust be created. In re Certified Question, 447 Mich. 765, 791 n.31, 527 N.W.2d 468, 480 n.31 (1994). Here, the parties' settlement contract plainly contemplated that the benefit trust would be created, and it would be funded by a deposit to be made in full within 90 days after IRS approval of the new tax-exempt entity. Nothing in the settlement agreement empowered the City through subsequent performance of its obligations to arbitrarily extend that deadline merely by expressing a new date in the trust declaration.

At oral argument the City's counsel asserted that the plaintiffs have “waived the entire payment provision” of the settlement agreement by countenancing the deposit of approximately $4.2 million of the anticipated funding into a new Police and Fire VEBA, which was established under the terms of a separate settlement agreement that resolved the related state court litigation over retirement benefits for a subset of the plaintiff class. That argument, however, is unsupported by the record and contrary to the plain terms of the consent decree in this case.

Waiver “ ‘is the intentional relinquishment or abandonment of a known right.’ ” Ohio State Univ. v. Redbubble, Inc., 989 F.3d 435, 443 (6th Cir. 2021) (quoting United States v. Petlechkov, 922 F.3d 762, 767 (6th Cir. 2019)); see also Nexteer Auto. Corp. v. Mando Am. Corp., 314 Mich. App. 391, 395, 886 N.W.2d 906, 909 (2016). The plaintiffs did not relinquish or abandon any known right under the terms of the settlement agreement in this case because the settlement agreement expressly acknowledged the prospect of the establishment of the new Police and Fire VEBA and specified that any funding paid into the Police and Fire VEBA would be credited toward the satisfaction of the funding obligation in this case. The defendants have not pointed to any representation by which the plaintiffs otherwise relinquished or consented to modification of the funding schedule imposed by the consent decree. Nor have they explained how, as a matter of law, the plaintiffs were not justified in relying on the express provision of the settlement agreement stating that it would not be modified without written consent of all parties and the Court's approval.

It is undisputed that no such mutual consent has been obtained, nor has the Court's approval been granted — or even sought. “[C]ontracts with written modification or anti-waiver clauses can be modified or waived notwithstanding their restrictive amendment clauses. This is because the parties possess, and never cease to possess, the freedom to contract even after the original contract has been executed. However, the freedom to contract does not authorize a party to unilaterally alter an existing bilateral agreement. Rather, a party alleging waiver or modification must establish a mutual intention of the parties to waive or modify the original contract.” Quality Prod. & Concepts Co. v. Nagel Precision, Inc., 469 Mich. 362, 372, 666 N.W.2d 251, 257-58 (2003). The City has not pointed to anything in the record that demonstrates a mutual intention of the parties in this case to waive or modify the terms of the consent judgment.

Moreover, the consent judgment is both a contract and a judgment. Evoqua Water Techs., LLC, 940 F.3d at 229. In this respect the judgment aspect weighs heavily because the Court was called upon to approve the settlement as fair, adequate, and reasonable, which required consideration of all its terms, including the funding schedule. The defendant has not cited any legal authority endorsing its unilateral effort arbitrarily to modify those terms after they were endorsed by the Court and made binding by the entry of judgment.

III.

The plain terms of the consent judgment required payment in full of the initial $4.25 million investment by November 9, 2020. That deadline has passed. The City must pay the balance of the funds as contemplated by the consent judgment. The plaintiffs also ask for an award of costs and attorney's fees, but they have not cited any authority or a provision of the consent judgment that entitles them to that relief.

Accordingly, it is ORDERED that the plaintiffs' motion to enforce the consent judgment (ECF No. 96) is GRANTED.

It is further ORDERED that City of Pontiac must forthwith tender the remainder of the funds due the New VEBA trust.

DAVID M. LAWSON United States District Judge