Retirees ask top NC court to permit trial in State Health Plan case

State Supreme Court building viewed from angle — Carolina Journal photo by Mitch Kokai

State government retirees are urging the North Carolina Supreme Court to allow their 14-year-old lawsuit against the State Health Plan to move forward to trial. The plan’s lawyers argue that the case could cost taxpayers $3 billion.

The state’s highest court issued a 2022 ruling that favored 220,000 government retirees over the agencies overseeing health care benefits. The retirees argued that the state should have continued providing them free health benefits when it started charging premiums in 2011.

A trial in the case had been scheduled for March 2025. Court orders led to that trial’s cancellation. The State Health Plan’s lawyers are challenging the class certification in the case. along with other trial court rulings favoring the plaintiffs.

“In 2022, after a decade of litigation, this [Supreme] Court held that the already certified Plaintiffs’ class was entitled to partial summary judgment,” the plaintiffs’ lawyers wrote in a brief filed Friday. “Specifically, this Court held that said class of vested retirees had a contractual right to receive health insurance in retirement of at least the same coverage value as that into which they vested, and to receive said health insurance without paying premiums.”

The 2022 Supreme Court decision also reversed a state Appeals Court ruling favoring the State Health Plan. “Accordingly, the case was remanded for trial on two discrete factual issues: (1) were the contractual rights of the class members substantially impaired, and (2) if so, was said impairment reasonable and necessary to serve an important public purpose,” according to the court filing.

“Four years later, the trial this Court contemplated has still not occurred,” the retirees’ lawyers wrote. “First, Defendants sought to have this Court overruled by the Supreme Court of the United States, which declined to hear the case. They then sought to have this Court overrule itself, which it did not.”

The case moved forward to expert discovery, pre-trial conferences, and motions. “It was only then, nine years after the class was certified, three years after this Court granted partial summary judgment to said class, and one month before trial, that Defendants first challenged the certification order,” the court filing explained.

“Defendants claim an automatic right of appeal to this Court of any ruling that affects certification in any manner, though the statute they cite does not support this claim,” the retirees’ lawyers wrote. “In fact, such a reading would allow perpetual appeals of repeated decertification motions that would effectively postpone trial indefinitely. Although permanent delay may be what Defendants desire as the class of State retirees age and die, it is not the law.”

The retirees labeled the State Health Plan’s arguments “lacking.” “The decertification argument rests on the remarkable conclusion that although this Court granted partial summary judgment to the class as defined, what it really meant to do – though completely silently – was to ‘destroy’ the very class it simultaneously declared victorious on the primary issue the parties had been litigating for a decade,” according to the court filing.

“[T]his Court decided four years ago that there were genuine issues of material fact for trial, and there is no basis for reconsideration of this conclusion,” the retirees’ lawyers wrote. “Plaintiffs’ class consists of 220,000 workers who taught this State’s children, built its roads, guarded its prisoners, and presided over its court proceedings. They have fought for almost fourteen years to have their day in court; to ask a jury of their peers to restore unto them the rights they were promised for decades. They still fight for that day, four years after this Court narrowed the issues and remanded for trial. Enough is enough. It’s time for that trial.”

The lawsuit could cost the State Health Plan more than $3 billion if plaintiffs are successful, the plan’s lawyers warned the state Supreme Court in January.

“Plaintiffs demand $3.05 billion from the State of North Carolina,” the health plan’s lawyers wrote. “They claim the State substantially impaired their contracts for premium-free health insurance in retirement when the General Assembly passed a law authorizing the North Carolina State Health Plan to begin charging individual premiums to retired State employees.”

“After fourteen years of litigation, Plaintiffs rely on a single piece of evidence of substantial impairment in support of their multi-billion-dollar demand: The expert report and opinions of Ed Pudlowski, an actuary,” the court filing continued. “The foundational assumption to Pudlowski’s testimony on substantial impairment is that each Plaintiff is entitled to the exact same health insurance plan in retirement as the one that was offered by the State Health Plan when they vested.”

“Pudlowski presumed, for example, that a Plaintiff who vested into a healthcare plan with a $100 deductible and $200 out-of-pocket maximum is contractually entitled to that exact same deductible and that exact same out-of-pocket maximum, forever,” health plan lawyers wrote. “But this Court held that ‘it would be unreasonable to expect that the State would maintain the precise terms of the plans it offered in an entirely different era.’ All of Pudlowski’s opinions are based on this precise unreasonable assumption.”

Pudlowski’s opinions “violate this Court’s instructions to Plaintiffs on how they could — and could not — show substantial impairment in support of their constitutional claims,” the court filing argued.

The health plan pointed to another “fundamental flaw” in the case. It can no longer move forward as a class-action case, the plan’s lawyers argued.

“This Court was clear that Plaintiffs lack a monolithic ‘vested benefit,’” according to the court filing. “Rather, the benefit is determined by vesting year (of which there are at least twenty-four), and impairment is determined for each year after the enactment of the law allowing individual premiums (fifteen).”

Pudlowski “concluded that huge segments of the class were not impaired at all,” health plan lawyers wrote. “Continued class adjudication is impossible when Plaintiffs’ own evidence shows that the class lacks commonality on the very fact issue determinative of Defendants’ potential liability.”

Health plan lawyers argue that the plaintiffs are using Pudlowski’s “lone piece of flawed evidence” to “pursue a weeks-long trial involving three North Carolina State Treasurers (past and present), dozens of high-ranking State employees, and a substantial disruption to the continued operations of several executive-branch offices.”

The $3 billion in “purported damages” amount to “nearly the entirety of the State Health Plan’s annual budget,” according to the court filing. “On this record, the errors are clear; the circumstances extraordinary.”

Now the state is asking the state Supreme Court to end class certification in the case, reverse a trial judge’s decision permitting Pudlowski’s testimony, and reverse a ruling against the state on summary judgment.

The State Health Plan and government retirement systems, overseen by the state treasurer’s office, filed multiple motions in February 2025 before the scheduled trial.

One would decertify the class that extended the case beyond its original group of 26 plaintiffs, led by retired state Supreme Court Chief Justice Beverly Lake. Lake remains listed as the lead plaintiff, though he died in 2019.

A trial judge denied each of the state agencies’ motions, and they appealed to the court Lake once led. The judge overseeing the dispute canceled the trial.

“Here, they succeeded where their writ of prohibition failed, by effectively putting a halt to the mutually agreed-upon trial setting,” the plaintiffs’ lawyers wrote in a Dec. 23 court filing. “In addition to the ill-sought writ of prohibition by the Defendants and their attempt to have the United States Supreme Court review this Court’s 2022 decision, this appeal marks the third appeal made to this Court in this case, which began over thirteen years ago and was a mere month from trial before this latest effort of the Defendants to avoid a ‘just resolution.’”

The retirees’ Dec. 23 court filing featured a motion to dismiss the latest appeal. Their lawyers argued against allowing the state agencies to appeal the trial judge’s decision about decertifying the class of plaintiffs.

“If this Court were to interpret N.C.G.S. § 7A-27(a)(4) to allow immediate appeal of every denied class decertification motion, not only would that lead to abuse, delay, and fragmented appeals, but also expand the general jurisprudence of the scope of permissible interlocutory appeals, and be a misinterpretation of the plain and clear language set forth in N.C.G.S. § 7A-27(a)(4), which is expressly limited to certification orders,” the plaintiffs’ lawyers argued.

“Class certification motions typically proceed only once in a case, are either granted or denied, and under N.C.G.S. § 7A-27(a)(4) can then be immediately appealed before further litigation,” the plaintiffs’ court filing continued. “Motions for class decertification, on the other hand, are not limited in timing or frequency and … are not even allowed under North Carolina law. Allowing a defendant to, at any time, file a class decertification motion and then immediately appeal that ruling to this Court, effectively allows one party to unilaterally disrupt and interminably delay the course of complex litigation.”

The retirees also set out arguments against the defendants’ motions to exclude expert testimony and to reconsider a motion for summary judgment for the state agencies.

“While the Defendants have delayed this trial interminably through their procedural antics, the members of the retiree class are dying at an ever-increasing rate such that many members of the class will never see the benefit of their bargain as promised by the State and upheld by this Court in the 2022 Opinion,” the plaintiffs’ lawyers wrote. “By waiting nine years to raise issues with the class certification, Defendants have waived the right to now appeal such matter and this appeal should be dismissed in its entirety.”

State government established in 1982 a free health plan for government workers and retirees. A 1985 law set a five-year vesting period for workers to become eligible for the plan. In 2006 that five-year period was extended to 20 years for all future hires.

The state began charging premiums in 2011 for the plan that replaced the original 1982 plan. “In response to the unilateral diminution of their vested retirement health benefits, vested retirees filed this suit over twelve years ago on 20 April 2012 on behalf of themselves and other similarly situated retirees,” according to the Dec. 23 court filing.

Class-action certification in 2016 expanded the number of plaintiffs beyond Lake and 25 others.

The plaintiffs won an initial trial court victory in 2017, but a unanimous NC Court of Appeals panel ruled in 2019 against the retirees. Appellate judges agreed the plaintiffs had failed to prove the existence of a valid contract.

The state Supreme Court agreed to take the case in February 2020. In January 2021, the court announced that five of seven justices were disqualified from hearing the case “based on familial relationships with potential class members” who might benefit from the court’s decision. Plaintiffs urged the court to rely on a Rule of Necessity to move forward with the case. Defendants objected.

The high court granted the plaintiffs’ request. In the end, only Chief Justice Paul Newby recused himself from hearing the case. The March 2022 decision ended up splitting the court along party lines, with the court’s four Democrats outvoting their two remaining Republican colleagues.

“It is understandable that the Retirees — who, before 2011, were eligible to remain enrolled in the 80/20 PPO Plan without paying a premium— would perceive being required to pay a premium to remain enrolled in the 80/20 PPO Plan as diminishing their bargained-for rights,” wrote Justice Anita Earls for the Supreme Court’s four Democrats. “[W]e agree with the trial court that the Retirees enjoyed a constitutionally protected vested right in remaining enrolled in the 80/20 PPO Plan or its substantive equivalent on a noncontributory basis.”

That’s not the end of Earls’ analysis. “Nonetheless, the Retirees are entitled to receive only the benefit of the bargain they struck with the State and nothing more,” she wrote. “To prevail on their claims arising under Article I, Section 10 of the United States Constitution (the Contracts Clause), the Retirees must also demonstrate that the General Assembly ‘substantially impaired’ their contractual rights when it eliminated the option of enrolling in the premium-free 80/20 PPO Plan. And even if the Retirees meet this burden, the State must be afforded the opportunity to show that the impairment was ‘reasonable and necessary to serve an important public purpose’ and was thus not in violation of the Contracts Clause.”

The Supreme Court called on a trial judge to address “numerous genuine issues of material fact.”

“Although the 2011 Act plainly requires the Retirees to pay a premium to remain enrolled in a plan previously offered on a noncontributory basis, many variables besides a premium — such as the size of a plan member’s deductibles and co-pays, and the scope of coverage the plan affords — affect the value of a health insurance plan,” Earls wrote. “Furthermore, in a rapidly changing world of dramatic medical advances and evolutions in how health care is financed, including changes to the State’s overall health insurance offerings that provide new options for retired state employees, it would be unreasonable to expect that the State would maintain the precise terms of the plans it offered in an entirely different era.”

While Newby took no part in the case, the court’s other two Republican justices issued a partial dissent from Earls’ majority opinion.

“I agree with the majority that we must remand this case for factual determinations on whether the State substantially impaired a contract and whether such impairment was reasonable and necessary,” wrote Justice Tamara Barringer. “However, because the evidence in the record, when viewed in the light most favorable to the State, creates a genuine issue of material fact as to whether any contractual obligation is present, we should also remand that issue to the trial court for resolution by the fact-finder. Accordingly, I respectfully concur in part and dissent in part.”

Evidence of a contractual obligation was not as clear to Barringer. She cited information provided to state employees and retirees over the years, along with changes to the health care benefit laws.

“While certainly some materials supporting plaintiffs’ position exist, plaintiffs must also admit the existence of other materials that directly contradict the reasonableness of their reliance,” she wrote. “When the entirety of the record is viewed in the light most favorable to the State, the right-to-amend provision, the disclaimers in the booklets, and the constant statutory changes are substantial evidence that could support a finding that plaintiffs did not reasonably rely on a promise of health benefits provided by statute in entering into or continuing employment with the State.”

If there is a contractual obligation, a trial court would have to determine the obligation, Barringer concluded. “[F]or the entirety of the State Health Plan’s thirty-year existence, retirees have never received a health plan at a locked-in, unchanging value,” she wrote. “Rather, retirees received whatever plan the State was then offering to current employees, which varied from year to year. Given this constant variance, the question of what terms would attach to a contractual obligation arising out of plaintiffs’ reasonable reliance is also a genuine issue of material fact, one that the fact-finder should resolve in this case.”

After the 2022 elections flipped the court from a 4-3 Democratic majority to a 5-2 majority favoring Republicans, the new court issued an October 2023 order rejecting the agencies’ request for a writ of prohibition blocking the earlier ruling.

The US Supreme Court also rejected an appeal led by then-Treasurer Dale Folwell in June 2022.

Plaintiffs argue that the state breached its contract to provide them with premium-free health insurance. They want the state to resume premium-free coverage and reimburse them for premiums they have paid.

The case has limited impacts beyond current plaintiffs. A 2017 state law ended retirement health benefits for any state workers hired after the law’s effective date.

“Retirees ask top NC court to permit trial in State Health Plan case” was originally published on www.carolinajournal.com.