STATE of West Virginia, ex rel. Stanley L. KLOS, Petitioner Below, Appellee, v. WEST VIRGINIA BOARD OF INVESTMENTS, a Body Corporate of the State of West Virginia, Respondent Below, Appellee, West Virginia Trust Fund, Inc., a West Virginia Corporation, Respondent Below, Appellant.
WEST VIRGINIA TRUST FUND INC v. BAILEY
WEST VIRGINIA TRUST FUND, INC., a West Virginia Non-Stock, Non-Profit Corporation, as Trustee, Petitioner Below, Appellant, v. Honorable Larrie BAILEY, Treasurer of the State of West Virginia, Respondent Below, Appellee.
STATE of West Virginia, ex rel. Honorable Darrell V. McGRAW, Jr., in his Official Capacity as the Attorney General of West Virginia, Petitioner Below, Appellee, v. WEST VIRGINIA TRUST FUND, INC., a West Virginia Corporation; and David Gardner, Chairman, West Virginia Trust Fund, Inc., Respondents Below, Appellants.
Stanley L. KLOS, Petitioner Below, Appellee, v. Honorable Larrie BAILEY, Treasurer of West Virginia, Respondent Below, Appellee.
-- March 28, 1997
The West Virginia Trust Fund Act was effective on March 4, 1996, the date of passage. West Virginia Trust Fund, Inc., was incorporated on May 10, 1996. On July 1, 1996, the State Treasurer was requested to transfer the assets from the five pension plans and two workers' compensation funds to Trust Fund, Inc. That same day, appellee Stanley Klos (a West Virginia citizen) filed a declaratory judgment action against appellee Treasurer Larrie Bailey seeking a declaration that the West Virginia Trust Fund Act was unconstitutional. Six days later, appellee Klos filed a second declaratory judgment action against appellee West Virginia State Board of Investments and appellant Trust Fund, Inc. Because of this litigation, appellee Bailey refused to transfer pension assets to the appellant. Appellant Trust Fund, Inc., then filed an action petitioning the circuit court for a writ of mandamus to compel the Treasurer to turn over the pension assets. Subsequently, an action seeking a writ of quo warranto 6 was filed by the appellee Attorney General alleging that the West Virginia Trust Fund, Inc., had usurped the inherent constitutional authority of the Treasurer.
The circuit court consolidated these four actions. On November 12, 1996, the circuit court ruled that the Act is unconstitutional in its entirety as a violation of West Virginia Constitution, Article X, section 6. Further, the court found the Act unconstitutionally invaded the inherent duties of the treasurer and issued a writ of quo warranto dissolving West Virginia Trust Fund, Inc., as an illegal corporation. This appeal followed.
A.Standard of Review
The unconstitutionality of a statute must be shown beyond a reasonable doubt. Our standard for reviewing the constitutionality of statutes was set forth in Syllabus Point 1 of State ex rel. Appalachian Power Company v. Gainer, 149 W.Va. 740, 143 S.E.2d 351 (1965), where we stated:
In considering the constitutionality of a legislative enactment, courts must exercise due restraint, in recognition of the principle of the separation of powers in government among the judicial, legislative and executive branches. Every reasonable construction must be resorted to by the courts in order to sustain constitutionality, and any reasonable doubt must be resolved in favor of the constitutionality of the legislative enactment in question. Courts are not concerned with questions relating to legislative policy. The general powers of the legislature, within constitutional limits, are almost plenary. In considering the constitutionality of an act of the legislature, the negation of legislative power must appear beyond reasonable doubt.
See also, Syllabus Point 1, State ex rel. Blankenship v. Richardson, 196 W.Va. 726, 474 S.E.2d 906 (1996); Syllabus Point 1, Wetzel County Solid Waste Authority v. West Virginia Div. of Natural Resources, 195 W.Va. 1, 462 S.E.2d 349 (1995); Syllabus Point 4, Donley v. Bracken, 192 W.Va. 383, 452 S.E.2d 699 (1994); Syllabus Point 1, Lewis v. Canaan Valley Resorts, Inc., 185 W.Va. 684, 408 S.E.2d 634 (1991); Syllabus Point 4, State ex rel. W.Va. Housing Development Fund v. Copenhaver, 153 W.Va. 636, 171 S.E.2d 545 (1969).
However, we are substantially less deferential when we examine legislative findings supporting legislation.
Legislative declarations of purpose in enacting law, or making an appropriation, while entitled to respect, will not be treated as conclusive, or as binding on this Court, where, from other facts, conditions and circumstances, appearing on the record, or from facts and events of which we may take judicial notice, it is clear that the real purpose of the legislation or appropriation involved was different from that declared.
Syllabus Point 1, State ex rel. City of Charleston v. Sims, 132 W.Va. 826, 54 S.E.2d 729 (1949).
B.Constitutionality of the West Virginia Trust Fund Act
The West Virginia Trust Fund Act states that “employee and employer contributions are declared to be an irrevocable trust, available for no use or purpose other than for the benefit of those public employees.” The Act also says that the State has “no proprietary interest” in moneys held by Trust Fund, Inc. The appellant Trust Fund, Inc., argues that these findings are conclusive as a matter of law on the issue of whether the State has a proprietary or fiduciary interest in the funds. We disagree. We do not believe that the conclusory recitals in the Act, or the mechanisms it establishes, can or do operate to eliminate the State's proprietary and fiduciary interest in the funds.
The Act relies on the establishment of a non-stock, non-profit public corporation to achieve its purposes. That corporation, appellant Trust Fund, Inc., contends that its existence is separate and independent of the State. On the contrary, we conclude that Trust Fund, Inc., is in a symbiotic and interdependent relationship with the State.
In Queen v. West Virginia University Hospitals, Inc., 179 W.Va. 95, 365 S.E.2d 375 (1987), we considered a similar argument. We examined statutes creating a university hospital corporation to determine if the corporation was a private or state actor for purposes of constitutional due process and the applicability of the state Freedom of Information Act.7 We stated that in such cases we would “evaluate the nature and extent of state involvement” to determine if an entity is a state actor, and if the entity's actions are fairly attributable to the state. 179 W.Va. at 103, 365 S.E.2d at 383.
We found in Queen that West Virginia University Hospitals, Inc.'s corporate existence was created by the Legislature. The hospital argued that it was created under our general corporate law; we disagreed stating:
The appellant's argument asks us to ignore the reality of the circumstances surrounding the creation of WVUH in favor of stilted formalism. The passage of § 18-11C-1 et seq. made possible the development of WVUH, and no contention is made that WVUH would ever have been incorporated were it not for the enabling statute.
179 W.Va. at 102, 365 S.E.2d at 382. We also found that West Virginia Hospitals, Inc., was created for state purposes such as providing medical education. We noted statutory requirements that annual audit records of West Virginia University Hospitals, Inc., be provided to the Legislature. Seven of the nine directors of the hospital corporation were appointed by the governor, subject to confirmation by the Senate. 179 W.Va. at 99, 365 S.E.2d at 379. Our review of the statutorily specified purposes indicated that the directors “have fiduciary duties to the people of the State of West Virginia.” Id. Taken together, it was clear that “the Legislature intended that WVUH remain accountable as a fiduciary to the people of West Virginia,” 179 W.Va. at 102, 365 S.E.2d at 382, and that a “symbiotic relationship” existed between the State and West Virginia University Hospitals, Inc. 179 W.Va. at 104, 365 S.E.2d at 384. Accordingly, in Queen we held the university hospital corporation to be subject to constitutional due process requirements and the Freedom of Information Act.
We can properly apply to Trust Fund, Inc., the same sort of analysis we applied in Queen. To determine if an entity is a state actor subject to constitutional duties or restrictions, the nature and extent of state involvement must be evaluated so as to determine if its actions are fairly attributable to the state. It is clear that the Legislature similarly (and, we think, necessarily) intended that Trust Fund, Inc., remain accountable to the people of West Virginia. Similar to our holding in Queen, we believe that West Virginia Trust Fund, Inc., is likewise in such an interdependent relationship with the State such that it is subject to the absolute constitutional restriction against investing in corporations or associations.
Trust Fund, Inc., would not have been incorporated were it not for the enabling statute, W.Va.Code, 44-6B-4. It was to begin its corporate life using property, equipment, and funds transferred from the Board of Investments. It was to use this equipment and property to assume the duties of the Board of Investments. W.Va.Code, 44-6B-9. The public purpose of Trust Fund, Inc., is specifically stated in the legislative findings, which declare that Trust Fund, Inc., must act “in all respects for the benefit of the state's public employees and ultimately the citizens of the state.” W.Va.Code, 44-6B-2(f) (emphasis added). Moreover, a principal purpose in creating Trust Fund, Inc., is to benefit the public fisc by reducing the need for legislative appropriations to fund pension plans.
Continuing with our review, Trust Fund, Inc., is accountable to both the general public and individual government officers. This is apparent in the requirements that financial and performance audits routinely be prepared and provided to numerous constitutional and other government officials, and that representatives of each pension and workers' compensation fund be advised prior to alterations in investment strategies. And, Trust Fund, Inc., must accept written and oral public comments at its annual meetings. This is a standard requirement for government agencies, not private corporations.
Each of Trust Fund, Inc.'s seven trustees is appointed by the governor. One trustee is chosen from each of four lists prepared by the treasurer, auditor, speaker of the House of Delegates, and president of the Senate. The remaining three are appointed by the governor alone, with the advice and consent of the Senate. These trustees can all be removed by the governor if he alone determines they have acted with “gross negligence or misfeasance.” The governor may appoint persons to fill vacancies if he chooses. The Act specifies that a key factor that guides the governor's choice of trustee candidates is not the candidates' financial or investment acumen, but their political affiliation. The base salaries of the trustees are set by the Legislature, not Trust Fund, Inc.
Trust Fund, Inc., owes substantial fiduciary duties to the people of West Virginia. The trustees are charged by law to act with the highest standard of care, skill, prudence and diligence,8 W.Va.Code, 44-6B-11, to benefit both state employees and the citizens of West Virginia. W.Va.Code, 44-6B-2(f). On the one hand, while representatives from state agencies must participate in meetings of the trustees, and the public and government agents are allowed to provide input to the trust fund, Trust Fund, Inc., is not bound to follow that input. W.Va.Code, 44-6B-4(g)-(l). On the other hand, the governor may remove trustees for what he perceives to be misconduct. W.Va.Code, 44-6B-4(e). Meanwhile, the Legislature retains the ability to amend, modify or alter the terms of the trust as it sees fit, without the consent or input of Trust Fund, Inc., and the beneficiaries. W.Va.Code, 44-6B-10(b)(1). Thus, the beneficiaries of the trust (public employees and the citizens of West Virginia) cannot directly control Trust Fund, Inc.'s investment of what is stated to be the employees' money.
The State continues to be responsible to public employees and others for moneys held by Trust Fund, Inc., in its pension and workers' compensation funds.9 As we stated in Dadisman, supra, a trust relationship continues to exist, and the State continues to have a beneficial interest in the money, regardless of the Act's declaration that the State has no proprietary interest. If the investment in corporate equities fails to provide a return, the taxpayers will be required to reimburse pension plans.10
Thus, when we apply to Trust Fund, Inc., the same type of factual review we applied in Queen, we find the same fiduciary and symbiotic relationship that made West Virginia University Hospitals, Inc., a state actor for due process purposes and subject to the Freedom of Information Act. Accordingly, we find that West Virginia Trust Fund, Inc., is a state actor and an instrumentality of the State and is subject to the West Virginia Constitution, Article X, section 6 prohibition against the investment of state moneys towards becoming a joint owner or stockholder in any company or association. Additionally, we find that the funds to be transferred to Trust Fund, Inc., because of the State's fiduciary interest in the funds are subject to the constitutional restriction.
In reaching this conclusion, we expressly do not address appellant Trust Fund, Inc.'s position that diversified investments are an effective means of increasing the return on pension moneys. We acknowledged in Gainer that “investments in the stock market would likely produce a greater return over the long term for the consolidated fund, if prudently invested, than is currently being realized.” 194 W.Va. at 150, 459 S.E.2d at 538. We recognize that, subject to constitutional limits, how to spend, protect and preserve State moneys is a choice generally ascribed to the domain of the Legislature.
More than once we have observed that West Virginia Constitution, Article X, section 6 was originally enacted to prevent the State from following in the footsteps of pre-Civil War Virginia and incurring a massive debt to corporations.
As is well known, the mother Commonwealth of Virginia incurred a large and burdensome debt, largely through the granting of aid, and the extension of credit to counties, municipalities and private corporations, in encouraging various enterprises, particularly the construction of railroads, turnpikes, bridges, and other permanent works, designed to be of value to the general public. The recollection of the result of this mistaken policy on the part of Virginia was fresh in the minds of those who, in 1872, met to frame a new Constitution for this State. They attempted to set up guards against the repetition, by this State, of the policy which had brought so much grief to Virginia and its people, [by enacting Article X, section 6] ․
State ex rel. City of Charleston v. Sims, 132 W.Va. 826, 839-840, 54 S.E.2d 729, 737 (1949). The appellant and amici cogently argue that the specific historical circumstances surrounding the enactment of the 1863 and 1872 constitutions no longer exist, and that Article X, section 6 is therefore inapplicable. But we rejected this argument in Gainer, and we adhere to the position that the times have not changed so much that we are permitted to abandon plain constitutional language.11
The clear language of West Virginia Constitution, Article X, section 6, itself stands as a bar to state ownership of corporate stocks. Article X, section 6 is written as an unconditional proscription of any investment by the State towards becoming a joint owner or stockholder in any company or association. Gainer, 194 W.Va. at 149, 459 S.E.2d at 538 (1995). “ ‘Where a provision of a constitution is clear in its terms and of plain interpretation to any ordinary and reasonable mind, it should be applied and not construed.’ Syl. Pt. 3, State ex rel. Smith v. Gore, 150 W.Va. 71, 143 S.E.2d 791 (1965).” Syllabus Point 1, Gainer. Since Trust Fund, Inc., is acting as a state instrumentality we conclude beyond a reasonable doubt that it is unconstitutional for the corporation to invest state employees' pension or workers' compensation funds in corporate equities.
In Dadisman we ruled that the statutes creating pension plans also created a fiduciary duty in the State to protect those funds. Gainer ruled that the attempt by the State Board of Investments to directly invest those state funds in corporate equities was unconstitutional. Here, we face an artful attempt by the Legislature to create an alter ego of the State, and to use that alter ego to indirectly invest state moneys in corporate stock.
We spoke to similar indirect methods of allocating the public treasury (methods which implicated the West Virginia Constitution, Article X, section 6 restrictions) in Berry v. Fox, 114 W.Va. 513, 519, 172 S.E. 896, 899 (1934) when we stated:
Unless plain and simple words have lost their meaning, section 6 of article 10 of our present Constitution prohibits the legislature from granting the credit of the state or assuming debts and liabilities such as are in said section indicated, whether such assumption be done directly and unequivocally or by indirection.
Our holding today is the same: circumvention or indirection are not permissible methods for avoiding the substantive meaning of plain words in the constitution.
By simply declaring that the State has no ownership in the funds in question, the Legislature does not thereby immunize an act from scrutiny under Article X, section 6 of the Constitution. Our inquiry does not end with the Legislature's declaration of purpose. A statute which appears at first blush to satisfy a constitutional prohibition must be examined in its entirety to determine if its actual function is violative of the Constitution.
We conclude that the State cannot by circumvention or indirection avoid the meaning of plain words in the Constitution; therefore, the language in the legislative declarations in W.Va.Code, 44-6B-2, which provide that the “state and other public employers ․ have no proprietary interest” in state pension and workers' compensation funds are insufficient to avoid the clear language and meaning of West Virginia Constitution, Article X, section 6. We find that West Virginia Trust Fund, Inc., was established to act in the shadow of the State, to do indirectly what the State cannot do directly. This is not constitutionally permissible.12
C. Severability of Statutory Provisions
The appellant argues that the circuit court improperly declared the entire West Virginia Trust Fund Act unconstitutional. The appellant argues that we should use the least intrusive remedy and sever any provisions of the Act which we find to be unconstitutional and void. W.Va.Code, 2-2-10(cc)  provides:
Unless there is a provision in a section, article or chapter of this code specifying that the provisions thereof shall not be severable, the provisions of every section, article or chapter of this code, whether enacted before or subsequent to the effective date of this subdivision, shall be severable so that if any provision of any such section, article or chapter is held to be unconstitutional or void, the remaining provisions of such section, article or chapter shall remain valid, unless the court finds the valid provisions are so essentially and inseparably connected with, and so dependent upon, the unconstitutional or void provision that the court cannot presume the Legislature would have enacted the remaining valid provisions without the unconstitutional or void one, or unless the court finds the remaining valid provisions, standing alone, are incomplete and are incapable of being executed in accordance with the legislative intent[.]
We agree with the abstract principle that there may conceivably be investments that could constitutionally be made by Trust Fund, Inc. However, appellant Trust Fund, Inc., fails to identify which specific statutory provisions could be cleanly severed from the Act, and we decline to assume a legislative role, rummaging through the entire Act, patching together sentences which we feel would reach a constitutional result. Further, the entire Act was introduced and passed by the Legislature to permit the indirect investment of state moneys in corporate equities, and we cannot conceive how to separate this unconstitutional goal from the Act. Accordingly, we find that the West Virginia Trust Fund Act, W.Va.Code, 44-6B-1 to -12 , is unconstitutional as it violates the unconditional constitutional proscription against the State becoming a joint owner or stockholder in any corporation or association.
D. Duties of the State Treasurer
The appellee Attorney General contends that the West Virginia Trust Fund Act has impermissibly altered the core functions and duties inherent in the constitutional executive office of state treasurer. The Attorney General argues that “certain core functions” are implicit in the constitutionally designated title of the office, and West Virginia Trust Fund, Inc., is interfering with these functions by managing the pension and workers' compensation funds. The appellant Trust Fund, Inc., argues that the treasurer has no inherent duties and has only those powers which are granted by the Legislature. We decline at this point to venture deeply into this quagmire of divining “core functions.” We simply hold that we find no inherent duties of the state treasurer which are affected by the West Virginia Trust Fund Act.
The office of treasurer, along with the other elective offices of the executive department, is established by West Virginia Constitution, Article VII, section 1. That provision states, in pertinent part:
The executive department shall consist of a governor, secretary of state, auditor, treasurer, commissioner of agriculture and attorney general, who shall be, ex officio, reporter of the court of appeals․ They ․ shall perform such duties as may be prescribed by law.
In our seminal decision of Manchin v. Browning, 170 W.Va. 779, 296 S.E.2d 909 (1982), we analyzed the powers that Article VII, section 1 granted to the attorney general. We concluded that the plain language of this constitutional provision failed to confer common law powers on the attorney general such as those found in England and British North America during the colonial period. “The powers and duties of the Attorney General are specified by the constitution and by rules of law prescribed pursuant thereto.” Syllabus Point 1, Manchin, supra.
We revisited this holding in State ex rel. Fahlgren Martin, Inc. v. McGraw, 190 W.Va. 306, 438 S.E.2d 338 (1993), where the Attorney General argued that his oath of office and the Constitution required that he halt any contract which he believed to be illegal and investigate any wrongful acts inherent in the contract. After reviewing the Constitution and all applicable statutes, we found the office of attorney general had no inherent powers to review state contracts beyond those granted by the Legislature. We concluded:
The West Virginia Constitution and W.Va.Code § 5A-3-13 (1993) grant the Attorney General the duty to approve a contract as to form only․ The Attorney General cannot hold a contract in his office awaiting the outcome of a trial, investigation or other proceedings. The Attorney General has no investigative powers in connection with the contract. He cannot sue on the contract on behalf of the State unless otherwise authorized by statute.
Syllabus Point 3, in part, Fahlgren Martin, supra.
We believe the same rationale applies in the instant case. The appellees have not directed us to any relevant authorities that would suggest the state treasurer has any “inherent” duties beyond those specifically spelled out in the Constitution,13 and certainly no duties impaired by the Act. Our review of the constitutional debates surrounding the formation of the executive branch and the office of treasurer supports the conclusion that our founders intended for the Legislature to define most of the responsibilities of the office.14
The powers and duties of the state treasurer are only as specified by the Constitution and by rules of law prescribed pursuant thereto. We find nothing repugnant to this principle in the West Virginia Trust Fund Act.
We affirm the circuit court's ruling declaring the West Virginia Trust Fund Act, W.Va.Code, 44-6B-1 to -12 , unconstitutional. However, we hold that the Act does not interfere with any duties of the treasurer, as the powers and duties of the treasurer are only as specified by the Constitution and statutes prescribed by the Legislature.
Affirmed in part; reversed in part.
§ 44-6B-1. How article cited
This article shall be known and may be cited as the “West Virginia Trust Fund Act”.
§ 44-6B-2. Legislative findings and purpose