The opinion of the court was delivered by: Marilyn L. Huff, District Judge United States District Court
(1) GRANTING IN PART AND DENYING IN PART DEFENDANT CITY OF SAN DIEGO AND INDIVIDUAL DEFENDANTS' MOTION TO DISMISS;
(2) GRANTING IN PART AND DENYING IN PART DEFENDANT MICHAEL AGUIRRE'S MOTION TO DISMISS;
(3) GRANTING IN PART AND DENYING IN PART DEFENDANT SDCERS' MOTION TO DISMISS; AND
(4) GRANTING DEFENDANT KPMG'S MOTION TO DISMISS
On October 19, 2006, Plaintiffs, over 1600 individual police officers, filed their Second Amended Complaint ("SAC") against Defendants, alleging claims under 42 U.S.C. § 1983 and various state law claims. (Doc. No. 70.) On October 10, 2006, Defendant City of San Diego ("City") and the Individual Defendants filed a motion toa dismiss, or in the alternative, to stay.*fn1 (Doc. No. 62.). Defendant Michael Aguirre filed a motion to dismiss on October 10, 2006.*fn2 (Doc. No. 65.) On November 3, 2006, Defendant San Diego Employees' Retirement System ("SDCERS") filed a motion to dismiss the SAC, or alternatively, to abate or dismiss proceedings pertaining to state pension underfunding issues. (Doc. No. 86.) Finally, Defendant KPMG, LLP ("KPMG") filed a motion to dismiss the SAC on November 3, 2006. (Doc. No. 87.)
On October 10, 2006, Defendant City and the Individual Defendants filed a joinder to Defendant Aguirre's motion to dismiss. (Doc. No. 62.) On the same date, Defendant Aguirre filed a joinder in part to Defendant City and the Individual Defendants' motion to dismiss. (Doc. No. 68.) On October 27, 2006, SDCERS filed a joinder in part to Defendant City and Individual Defendants' motion to dismiss. (Doc. No. 79.) On November 9, 2006, Defendant City and the Individual Defendants filed a joinder in part in SDCERS' motion to dismiss. (Doc. No. 90.)
The Court heard oral argument on the various motions on December 4, 2006. Christopher Nissen appeared on behalf of Plaintiffs. Peter Benzian appeared for Defendant City and the Individual Defendants. Rodney Perlman and Donald McGrath appeared for Defendant Aguirre. Matthew Mahoney appeared for Defendant SDCERS, and Martha Gooding appeared for Defendant KPMG. After reviewing the papers and hearing oral argument, the Court GRANTS in part and DENIES in part Defendant City of San Diego and the Individual Defendants' motion to dismiss; GRANTS in part and DENIES in part Defendant Aguirre's motion to dismiss; GRANTS in part and DENIES in part Defendant SDCERS's motion to dismiss; and GRANTS Defendant KPMG's motion to dismiss.
Additionally, the Court GRANTS Plaintiffs 30 days from the date this Order is stamped "Filed" to file a third amended complaint that addresses the deficiencies of the pleading set forth below.
The Court notes the related case filed on behalf of the San Diego Police Officers' Association, SDPOA v. Aguirre, 05-CV-1581-H(POR). In that action, SDPOA sued in its capacity as the recognized employee organization representing police officers employed by the San Diego Police Department. SDPOA filed that case in August 2005, and in the intervening months, the Court has ruled on numerous matters, including several motions to dismiss. The same counsel filed the above-captioned case, Aaron v. Aguirre, in the name of over 1,600 individual police officers. The operative complaints contain similar allegations. Both complaints rely on extensive materials to substantiate the allegations of misconduct in relation to the financial integrity of the municipal pension fund.
In brief, Plaintiffs in this case allege that the municipal pension fund is "actuarially unsound" and that their vested retirement and compensation benefits have been unlawfully eliminated or reduced. (See, e.g., SAC ¶¶ 17-26.) Plaintiffs further allege that the City engaged in bad faith labor negotiations with the police officers' union, SDPOA, in a scheme to take away vested retirement and healthcare benefits, and that the City singled them out for retaliation. (See, e.g., id. ¶¶ 29-45.) Additionally, Plaintiffs allege that Defendants manipulated pension funds and deprived them of contributions. (See, e.g., id. ¶¶ 46-50.)
In the SAC, Plaintiffs bring federal civil rights claims as well as state law claims against Defendant Aguirre, the San Diego City Attorney; Defendant City of San Diego; and SDCERS. The SAC also names individual employees and elected officers, including current and former members of the San Diego City Council,*fn3 former officials of the City of San Diego,*fn4 and former board members (or trustees) of SDCERS.*fn5 Unlike the SDPOA action, this action also names KMPG as a Defendant, the accounting firm that the City of San Diego hired to perform audits. (Compl. ¶ 15.) Finally, the SAC names Does one through 100 as Defendants. (Id. ¶ 16.)
A. Legal Standard for Motion to Dismiss
"A complaint should not be dismissed under Rule 12(b)(6) 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Id. In ruling on a Rule 12(b)(6) motion, the facts in the complaint are taken as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).
"Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). The court may, however, consider the contents of documents specifically referred to and incorporated into the complaint.
Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). As noted, Plaintiffs' complaint incorporates several reports and opinions to support its allegations of wrongdoing.
In addition, a court ruling on a motion to dismiss may consider facts that are subject to judicial notice. A district court may take judicial notice of matters of public record, but cannot use this rule to take judicial notice of a fact that is subject to "reasonable dispute" simply because it is contained within a pleading that has been filed as a public record. Lee v. City of Los Angeles, 250 F.3d 668, 689-90 (9th Cir. 2001); Biagro W. Sales Inc. v. Helna Chemical Co., 160 F.Supp.2d 1136, 1140-41 (E.D. Cal. 2001) (matters of public record include "pleadings, orders and other papers filed with the court"). Similarly, a court may take judicial notice of the existence of a court opinion, but not "'the truth of the facts recited therein.'" Lee, 250 F.3d at 689 (quoting Southern Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Group, Ltd., 181 F.3d 410, 426-27 (3d Cir. 1999)).
B. Statute of Limitations as to § 1983 Claims
Defendant City, Individual Defendants, SDCERS, and Aguirre argue that Plaintiffs' § 1983 claims*fn6 are barred by the two year statute of limitations. Plaintiffs oppose on several grounds.
In § 1983 actions, the court applies the same statute of limitations as the forum state for personal injury claims. Wilson v. Garcia, 471 U.S. 261, 275 (1985). In California, the statute of limitations for a personal injury claim is two years. See Cal. Code Civ. Proc. § 335.1. The accrual of a § 1983 claim is a question of federal law. Knox v. Davis, 260 F.3d 1009, 1013 (9th Cir. 2001). Under federal law, a § 1983 claim accrues "when the plaintiff knows or has reason to know of the injury which is the basis of the action." Id. (quoting TwoRivers v. Lewis, 174 F.3d 987, 991 (9th Cir. 1999)). Plaintiffs filed this action on July 18, 2006. (See Doc. No. 1.) Therefore, under the applicable two year statute of limitations, any claims in the Second Amended Complaint must have accrued after July 18, 2004.
1. First Amendment Retaliation
Defendants assert the statute of limitations argument as to Plaintiffs' § 1983 claims that are premised on alleged underfunding of SDCERS caused by implementation of MP1 in 1996 and MP2 in 2002. Plaintiffs' First Amendment claim alleges retaliatory conduct beginning in January of 2005 and, thus, is within the statute of limitations. (See SAC*fn7 ¶¶ 29-39.) Therefore, the Court DENIES Defendants' motion to dismiss based on statute of limitations as to Plaintiffs' First Amendment claim.
2. Contracts Clause, Takings Clause, Procedural Due Process, and Conspiracy to Violate Civil Rights Claims
In their motion, Defendants argue that Plaintiffs' representative, the SDPOA, as well as SDPOA officials, were involved in the implementation of MP1 and MP2 and were aware of those proposals' impact upon SDCERS funding levels. Accordingly, Defendants argue that the statute of limitations began to run before July 18, 2004, making Plaintiffs' claims time barred. Defendants also point to this Court's reasoning and ruling on motions to dismiss in SDPOA v. Aguirre in support.
In opposition, Plaintiffs direct the Court to portions of the SAC in which they allege that they were not aware of the danger to their benefits until 2005 when the Mayor of San Diego's public comments, as well as statements by the City's labor negotiator, brought the issues to Plaintiffs' attention.*fn8 Further, Plaintiffs state that their § 1983 claims do not rely solely on MP1 and MP2 as the basis for alleged deprivation of rights.
Defendants argue that any claim for relief relating to MP1 is barred by the statute of limitations. Although Plaintiffs state that they did not know at the time that Defendants were scheming to underfund the pension plan until early 2005, (see SAC ¶ 51), they attach numerous exhibits to the SAC that demonstrate the contrary.
Manager's Proposal 1, or MP1, was implemented in 1996 and contained provisions granting additional retirement benefits while reducing annual funding percentages. (See, e.g, id., Ex. K at 14; Ex. G at 9.) MP1 also contained a provision requiring the City to make a balloon payment if the ratio of fund assets to liabilities fell below 82.3 percent. (Id., Ex. K at 14.) When MP1 was implemented, the plan was more than 90% funded. (Id.) After a downturn in the market, however, the funding ratio dropped to 77.3% in Fiscal Year 2002. (Id.)
The SDPOA was specifically involved in the meet and confer process that led to the implementation of MP1. (Id., Ex. J at 10, 25.) In March 1996, the City Council held a closed session for labor negotiations with three of the City's four unions, including the SDPOA, regarding MP1. (Id. at 10.) Additionally, Garry Collins, President of the SDPOA, signed off on MP1 in June 1996. (See id. at 28.) Because Plaintiffs' union and the union officials representing Plaintiffs were informed and involved in the meet and confer process regarding MP1, and because union officials approved MP1, Plaintiffs had knowledge of the implementation of MP1 at the time. Moreover, a pension board member who voted against MP1 warned of the risk MP1 posed to the financial stability of SDCERS at a workshop regarding MP1 held on June 11, 1996. (Id. at 37-44.) Specifically, the board member raised concerns about transferring the costs to the next generation, whether there were any standards regarding funding levels available to fiduciaries, and whether the board had a fiduciary duty to assess the City's financial ability to pay for the new benefits. (Id. at 37-39.) Further, a public hearing held on June 21, 1996 regarding MP1 addressed whether the pension board needed to determine whether the City would be able to meet its obligations under MP1. (Id. at 44.) In addition, the Court concludes that MP1, implemented in 1996, is too remote in time and clearly outside the statute of limitations period. Accordingly, the Court GRANTS Defendants' motion on this ground, and any claims concerning the implementation of MP1 in 1996 are barred by the statute of limitations.
For the same reasons, the Court GRANTS Defendants' motion to dismiss as to the former members of the San Diego City Council and the former city manager whose terms expired by 2002. Any alleged acts by these former City Council members were based on the implementation of MP1 and their acts are barred by the statute of limitations. These Defendants include Mathis, Wear, Kehoe, Stevens, Warden, Stallings, McCarty, Vargas and former city manager McGrory.
Similarly, Defendants argue that Plaintiffs were involved in the implementation of MP2 and were aware of its effect upon SDCERS funding levels. Therefore, Defendants argue that the statute of limitations began to run prior to July 18, 2004, and, thus, Plaintiffs' claims based upon MP2 are time barred. In particular, Defendants argue that the directors of the SDPOA were aware of the risks presented by MP2. Further, Defendants argue that the documents Plaintiffs attached to the SAC show that implementation of MP2 was a critical component of the City's labor negotiations involving SDPOA. Further, Defendants point out that SDPOA's treasurer attended SDCERS board meetings leading up to the enactment of MP2 during which individuals warned of the dangers MP2 posed to the soundness of SDCERS. In response, Plaintiffs state that the facts surrounding the underfunding problems with MP2 are disputed. Further, they direct the Court to a portion of the SAC in which they state that they were not aware of the dangers to their benefits until 2005.
MP2 was entered into by the City Council on November 18, 2002. (See, e.g., id., Ex. G at 11.) In part, MP2 was implemented to avoid the cash infusion to the pension system established in MP1, which, as mentioned above, required the city to make up the shortfall if the funded ratio went below 82.3%. (See, e.g., id., Ex. K at 14.) Under MP2, the parties agreed to additional and retroactive benefits without a corresponding increase in contributions. MP2 added substantial liabilities to the pension fund. (Id.)
Defendants argue that Plaintiffs' union was involved in the meet and confer process with the City concerning MP2. (See SAC, Ex. K at 18.) Although the document attached to the SAC referenced by Defendants states that MP2 was discussed "[i]n the meet and confer process with the labor union," (id.), the facts surrounding the underfunding problems with MP2 are disputed. Similarly, although Defendants point to a document indicating that SDPOA's treasurer attended many SDCERS board meetings, the facts are in dispute regarding Plaintiffs' knowledge. For example, the SAC alleges that Plaintiff did not learn about the danger to the soundness of the pension system until early 2005, and that they did not learn of associated funding dangers until mid 2005. (Id. ¶ 51.) Further, the SAC alleges that Defendants met in closed sessions to divert funds used for the pension for "pet projects" and personal gain. (Id. ¶ 27.)
In ruling on a motion to dismiss, the Court must take the allegations in the SAC as true. See North Star Int'l, 720 F.2d at 581. Based on the allegations of conflict of interest, self dealing, and violation of various laws, and based upon factual disputes and uncertainty as to timing, the Court DENIES Defendants' motion to dismiss any causes of action relating to MP2 on statute of limitations grounds.
c. Press Coverage of SDCERS Financial Status
Defendants also argue that the troubled financial status of SDCERS was a widely known public issue before July 2004 due to overwhelming publicity regarding SDCERS underfunding. While Defendants acknowledge this Court's ruling in SDPOA v. Aguirre declining to find that newspaper articles demonstrated as a matter of law that the statute of limitations barred any causes of action relating to MP2, they argue that the additional publicity between August 2003 and July 18, 2004 requires a different result in this case. Plaintiffs make several arguments in response. First, they claim that underfunding by itself is not the liability trigger, as they argue that underfunding alone did not make SDCERS actuarially unsound. Accordingly, Plaintiffs assert that Defendants would have to show that each Plaintiff had actual or constructive knowledge that SDCERS was actuarially unsound. Further, Plaintiffs argue that none of the news reports indicate the funding ratio for SDCERS at any point in time, and they do not explain what percentage would constitute actuarial unsoundness. Rather, Plaintiffs asset that the articles simply provide dollar amounts without context. Finally, Plaintiffs argue that Defendants' argument based upon press coverage is premature at the motion to dismiss stage.
In ruling on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), if "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed. R. Civ. P. 12(b); see also United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). A court may consider certain materials such as documents attached to the complaint, documents incorporated by reference in the complaint or matters of judicial notice without converting the motion to dismiss to a motion for summary judgment. Ritchie, 342 F.3d at 908. Courts may only take judicial notice of facts that are "not subject to reasonable dispute." Fed. R. Evid. 201(b). These facts must either be "generally known within the territorial jurisdiction of the trial court," or "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Id. In Pharmacare v. Caremark, the court stated that newspaper articles submitted by the parties would convert the motion into one for summary judgment. 965 F. Supp. 1411, 1417 n.9 (D. Haw. 1996).
Even though Defendants attempt to distinguish the situation in this case from that in SDPOA v. Aguirre by highlighting the additional news coverage of the pension crisis between August 2003 and July 2004, at the motion to dismiss stage the Court concludes that consideration of newspaper articles does not establish as a matter of law that the causes of action relating to MP2 are barred by the statute of limitations. Accordingly, the Court DENIES Defendants' motion to dismiss on statute of limitations grounds based upon press coverage. Defendants may renew their statute of limitations defense in a motion for summary judgment where the Court determines whether there are disputed issues of material facts.
d. Plaintiffs' Estoppel Theory
Defendants contend that Plaintiffs' theory that Defendants should be estopped from asserting the statute of limitations, which Plaintiffs assert in the SAC, is inapplicable. (See SAC ¶ 9.) According to the SAC, a state court ruled in favor of Aguirre and the City in a related action, finding that their cross complaint sufficiently alleged tolling due to a conspiracy to conceal wrongdoing relating to MP1 and MP2. (Id.) Thus, Plaintiffs assert that, because Aguirre and the City's position in that case is inconsistent with the position they took in SDPOA v. Aguirre, the City should be estopped from arguing that tolling does not apply as to MP1 and MP2 in this case.
"Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001) (citing Rissetto v. Plumbers & Steamfitters Local 343, 94 F.3d 597, 600-01 (9th Cir. 1996) and Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)). The Supreme Court has set forth three factors courts may consider in determining whether to apply judical estoppel: (1) whether the party's position is clearly inconsistent with its earlier position; (2) whether the party has been successful in persuading a court to accept the party's earlier position; and (3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001). "An inconsistent factual or legal position is a threshold requirement" for judicial estoppel to apply. United States v. Lence, 466 F.3d 721, 726 (9th Cir. 2006).
The Ninth Circuit has declined to apply the doctrine where a party's two positions were not necessarily inconsistent. See, e.g., Yanez v. United States, 989 F.2d 323, 327 (9th Cir. 1993).
Here, Plaintiffs argue that Defendants took the position in the earlier state court suit that the statute of limitations was tolled due to conspiracy to conceal wrongdoing, while in their present motion Defendants argue that Plaintiffs' concealment allegations do not toll the statute of limitations. Defendants, on the other hand, argue that their position in the state case concerns the ongoing and continuing payment of allegedly unlawful benefits. Defendants assert that their position in this case is not inconsistent, arguing that Plaintiffs do not challenge the legality of benefits, but instead challenge discrete acts of underfunding. Because the Defendants' positions are not "clearly inconsistent," the Court declines to apply judicial estoppel. New Hampshire, 532 U.S. at 750.
In sum, the Court GRANTS Defendant City of San Diego, Individual Defendants, Defendants SDCERS, and Aguirre's motion to dismiss on statute of limitations grounds as to MP1 on the Contracts Clause, Takings Clause, 14th Amendment Due Process Clause, and Conspiracy to Violate Civil Rights causes of action. The Court also GRANTS Defendants' motion to dismiss as to the former members of the San Diego City Council and the former city manager whose terms expired by 2002. These Defendants include Mathis, Wear, Kehoe, Stevens, Warden, Stallings, McCarty, Vargas and former city manager McGrory. The Court DENIES Defendants' motion to dismiss any federal causes of action based on MP2. The Court also DENIES Defendants' motion to dismiss based on statute of limitations as to the First Amendment claim because MP1 and MP2 are not relevant to that claim.
C. Absolute Legislative Immunity
The City Council Defendants, joined by Aguirre, argue that they are entitled to absolute legislative immunity, and thus, the Court must dismiss Plaintiffs' § 1983 claims against them. Plaintiffs oppose, arguing that these Defendants have not met their burden of establishing absolute immunity.
Local legislators are absolutely immune from suit under § 1983 for their legislative activities. Bogan v. Scott-Harris, 523 U.S. 44, 49 (1998). Immunity attaches to all actions taken "in the sphere of legitimate legislative activity." Id. at 54. Whether an act is legislative depends on the nature of the act, rather than the motive or the intent of the official. Id. The burden of establishing absolute immunity is on the party asserting it. Kaahumanu v. County of Maui, 315 F.3d 1215, 1220 (9th Cir. 2003).
The Ninth Circuit requires courts to consider the following factors in determining whether an action is legislative: (1) "whether the act involves ad hoc decisionmaking, or the formulation of policy"; (2) "whether the act applies to a few individuals, or to the public at large"; (3) "whether the act is formally legislative in character"; and (4) "whether it bears all the hallmarks of traditional legislation." Id. Legislators cannot claim immunity for illegal acts, however. Bruce v. Riddle, 631 F.2d 272, 279 (4th Cir. 1980). The Supreme Court has not "hesitated to sustain the rights of private individuals when it found Congress was acting outside its legislative role." Tenney v. Brandhove, 341 U.S. 367, 377 (1951).
According to the SAC, each natural person Defendant acted in a manner that constituted "ad hoc decision making and illegitimate legislative activity for the purpose of diverting retirement system contributions and funds, depriving, eliminating or reducing retirement system benefits, which benefits applied to a distinct group instead of to the public at large, and which were not formally legislative in character and/or taken through traditional legislative acts." (SAC ¶ 54.) While Defendants argue that the alleged acts were not ad hoc decision making, that the decisions affected a wide range of persons, that the decisions were formally legislative in nature, and that the acts bore hallmarks of legislation, the Court must accept the allegations in the complaint as true for purposes of ruling on a motion to dismiss. Accordingly, based on these allegations, the Court DENIES the City Council Member Defendants and Aguirre's motion to dismiss based on absolute legislative immunity. Defendants may raise their claim for absolute legislative immunity at a later stage of the proceeding.
D. Absolute Immunity as to Aguirre
Defendant Aguirre, joined by the City and Individual Defendants, argues that he should be entitled to absolute immunity. Plaintiffs rely on this Court's ruling in SDPOA v. Aguirre and ask the Court to deny Aguirre's motion on this ground.
Defendant Aguirre has not clarified why he is entitled to absolute immunity on the § 1983 claims. He cites to cases examining judicial and/or prosecutorial immunity. See, e.g., Imbler v. Pachtman, 424 U.S. 409, 431 (1976) (a prosecuting attorney was absolutely immune when he acted within the scope of his duties when initiating and prosecuting a criminal case). In Ashelman v. Pope, however, the court stated that prosecutorial immunity is not absolute if a prosecutor acts outside his authority. 793 F.2d 1072, 1077 (9th Cir. 1986). The court looks to "the nature and/or function of the prosecutor's activity." Id. If a prosecutor is performing investigative or ...