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Aaron v. Aguirre

March 8, 2007

ERICA AARON, ET AL., PLAINTIFFS,
v.
MICHAEL AGUIRRE, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Marilyn L. Huff, District Judge

ORDER: (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 DEFENDANT SDCERS' MOTION TO DISMISS; AND (4) GRANTING DEFENDANT KPMG'S MOTION TO DISMISS

On December 13, 2006, the Court granted in part and denied in part motions to dismiss various claims from Plaintiffs' Second Amended Complaint ("SAC"), and granted Plaintiffs leave to amend to attempt to cure certain deficiencies. (Doc. No. 100.) On January 12, 2007, Plaintiffs, over 1600 individual police officers, filed their Third Amended Complaint ("TAC") against Defendants, alleging claims under 42 U.S.C. § 1983 and various state law claims. (Doc. No. 109.) On January 22, 2007,

Defendant KPMG, LLP ("KPMG") filed a motion to dismiss the TAC. (Doc. No. 112.) On January 29, 2007, Defendant Michael Aguirre filed a motion to dismiss the TAC. (Doc. No. 115.) Defendant City of San Diego ("City") and the Individual Defendants filed a motion to dismiss the TAC on January 29, 2007. (Doc. No. 117.) Also on January 29, 2007, Defendant San Diego City Employees' Retirement System ("SDCERS") filed a motion to dismiss the TAC. (Doc. No. 118.)

On January 29, 2007, Defendant Aguirre filed a joinder to Defendant City and the Individual Defendants' motion to dismiss. (Doc. No. 115.) Similarly, on January 29, 2007, Defendant City and the Individual Defendants filed a joinder to the motions to dismiss filed by Defendant Aguirre and Defendant SDCERS. (Doc. No. 117.) On January 31, 2007, Defendant SDCERS filed a joinder to the motions to dismiss filed by Defendant Aguirre and by Defendant City and the Individual Defendants. (Doc. No. 119.)

Plaintiffs filed a response in opposition to SDCERS' motion on February 20, 2007. (Doc. No. 124.) Plaintiffs filed a response in opposition to Aguirre's motion to dismiss on February 20, 2007. (Doc. No. 125.) Plaintiffs filed a response in opposition to the City and Individual Defendants' motion to dismiss on February 20, 2007. (Doc. No. 126.) Plaintiffs filed an amended response in opposition to KPMG's motion to dismiss on February 21, 2007. (Doc. No. 128.)

On February 26, 2007, Defendant Aguirre filed a reply in support of his motion to dismiss. (Doc. No. 129.) KPMG filed a reply in support of its motion to dismiss on February 26, 2007. (Doc. No. 130.) SDCERS filed a reply in support of its motion to dismiss on February 26, 2007. (Doc. No. 131.) Also on February 26, 2007, the City and Individual Defendants filed a reply in support of their motion to dismiss. (Doc. No. 132.)

Pursuant to its discretion under Civil Local Rule 7.1(d)(1), the Court has submitted the motions on the papers without oral argument. After reviewing the papers and the pertinent portions of the record, and as explained below, 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 Defendant SDCERS' motion to dismiss; and GRANTS Defendant KPMG's motion to dismiss. Further, as set forth below, the Court grants in part leave to amend. Plaintiffs shall file any amended complaint within 30 days of the date of this order.

Background

Plaintiffs are active and retired San Diego police officers employed at various times by the City of San Diego. (TAC ¶ 2.) Plaintiffs allege systematic underfunding of the municipal pension system, which has rendered the system actuarially unsound. (Id. ¶ 15.) Plaintiffs' lawsuit arises out of the underfunding of the pension fund, and Plaintiffs allege that vested retirement and compensation benefits have been unlawfully eliminated or reduced. (Id. ¶¶ 17-31.) Further, Plaintiffs allege that Defendants conspired to cause the system to become actuarially unsound and subsequently conspired to cover up their fraud and the City's liability. (Id. ¶ 16.)

Plaintiffs allege that the City engaged in bad faith labor negotiations with Plaintiffs' recognized employee organization, the San Diego Police Officers' Association ("SDPOA"), as part of a scheme to take away vested retirement benefits and compensation. (Id. ¶¶ 26-37.) The TAC alleges that various Defendants manipulated pension funds for pet projects and personal gain, which led to the adoption of plans to defer contributions to the pension fund by the City. (Id. ¶ 42.) According to Plaintiffs, Defendant Aguirre conspired to facilitate a breakdown in the labor negotiations through acts of inducement and retaliation. (Id. ¶ 46.) Further, the TAC alleges that he has taken actions, and conspired to take actions, to reduce and take away Plaintiffs' pension benefits and compensation. (Id. ¶¶ 43-58.) Unlike the earlier suit filed by the SDPOA, this action also names KMPG as a Defendant, the accounting firm that the City hired to perform audits. (Id. ¶ 9.) Plaintiffs allege that KPMG participated in a conspiracy to conceal the City's wrongful conduct. (Id. ¶¶ 59-69.)

The TAC also alleges that the City, Aguirre, City Council Defendants, and City Official Defendants retaliated against Plaintiffs because they did not accept the City's last, best, final offer ("LBFO") in labor negotiations. (Id. ¶¶ 70-75.) Plaintiffs allege that the retaliation consisted of salary and benefit reductions and public criticism of the SDPOA. (Id.)

In the TAC, Plaintiffs bring federal civil rights claims as well as state law claims against Defendant Aguirre, Defendant City, SDCERS, and KPMG. The TAC also names individual employees and elected officers as Individual Defendants, including current and former members of the San Diego City Council,*fn1 former officials of the City of San Diego,*fn2 and former board members (or trustees) of SDCERS.*fn3 Finally, the TAC names Does 1 through 100 as Defendants. (Id. ¶ 10.) Plaintiffs attach several reports and opinions to support the allegations in the TAC.

Discussion

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). Conclusory allegations of law, however, will not defeat a motion to dismiss for failure to state a claim. See, e.g., Miranda v. Clark County, 279 F.3d 1102, 1106 (9th Cir. 2002).

"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). 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,*fn4 other than the First Amendment retaliation claim, are barred by the applicable two year statute of limitations as to claims premised on MP1. Plaintiffs oppose.

In § 1983 actions, the court applies the forum state's statute of limitations applicable to 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 Third Amended Complaint must have accrued after July 18, 2004.

In their motion, Defendants point out that the Court already dismissed Plaintiffs' claims based on MP1 and did not allow leave to amend. Further, Defendants argue that Plaintiffs' amended allegations in the TAC do not salvage the time barred claims. Defendants argue that Plaintiffs' representative, the SDPOA, and SDPOA officials were involved in the implementation of MP1 and were aware of those proposals' effect upon SDCERS funding levels. Further, Defendants argue that SDCERS board members warned of the consequences of MP1, and they state that information regarding the funding crisis has been publicly available since at least 2002. Accordingly, Defendants argue that the statute of limitations began to run before July 18, 2004, making Plaintiffs' claims time barred. In response, Plaintiffs argue that Defendants fail to identify a specific underfunding date following MP1 to commence the limitations period. Further, they argue that the date they should have known of the injury is a question of fact, and they assert the continuing violation theory. Next, without discussion, they assert that the complaint alleges fraudulent concealment. Finally, Plaintiffs assert, again without explanation, that Defendants are estopped from asserting statute of limitations as a defense because of an earlier ruling in state court.

In the TAC, Plaintiffs include allegations purportedly tolling the statute of limitations as to MP1. (TAC ¶¶ 103-11.) According to Plaintiffs, SDCERS, along with the SDCERS board, the City, City Council Defendants, and City Official Defendants, concealed the detrimental effect of MP1 by adopting MP2, which put off the City's required balloon payment. (Id. ¶¶ 105-06.) Plaintiffs allege that they did not learn of the damage caused by MP1 until they became aware of the grand scheme of Defendants in early 2005. (Id. ¶ 107.) Further, Plaintiffs allege that rank and file police officers did not become aware of the dangers of MP1 until 2005, even if insiders knew of the consequences earlier. (Id. ¶ 106.)

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.)

As indicated in the Court's order regarding motions to dismiss the SAC, although Plaintiffs state that they did not know that Defendants were scheming to underfund the pension plan until early 2005, (see id. ¶ 107), numerous exhibits Plaintiffs attach to the TAC demonstrate the contrary. Plaintiffs' representative, the SDPOA, was involved in the meet and confer process leading 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 knew 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 if the City would be able to meet its obligations under MP1. (Id. at 44.) Even assuming, as Plaintiffs allege, that the consequences of MP1 and MP2 came to light in 2002, that date is still several years prior to the relevant statutory limitations period.

Finally, Plaintiffs provide no discussion regarding their fraudulent concealment and estoppel arguments, and the Court already rejected the estoppel argument in its ruling on motions to dismiss the SAC. Accordingly, the Court rejects these arguments.

In sum, the Court concludes that MP1, implemented in 1996, is too remote in time and clearly outside the statute of limitations period. Plaintiffs knew or should have known of the alleged effect of MP1 prior to July 18, 2004. 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, and as indicated in the Court's previous order regarding motions to dismiss the SAC, 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.

The Court declines to allow Plaintiffs further attempts to amend regarding MP1. See, e.g., Royal Ins. Co. of Am. v. Sw. Marine, 194 F.3d 1009, 1016-17 & n.9 (9th Cir. 1999) (when denying leave to amend, court may consider late attempts to add new theories, futility of amendment, and prior attempts to cure deficiencies).

C. Qualified Immunity as to First Amendment Claims

In the order on motions to dismiss the SAC, the Court granted Defendants' motions to dismiss Plaintiffs' First Amendment retaliation claims on qualified immunity grounds, but granted Plaintiffs leave to amend.*fn5 With regard to the TAC, the Individual Defendants and Aguirre argue that they are entitled to qualified immunity as to Plaintiffs' § 1983 First Amendment retaliation claims. In support, Defendants argue that the Court should find, as it did with regard to the SAC, that Plaintiffs' amended allegations are insufficient to overcome qualified immunity. Plaintiffs oppose.

Under the doctrine of qualified immunity, "government officials performing discretionary functions generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982). To establish qualified immunity, a court must first determine whether "[t]aken in the light most favorable to the party asserting the injury, do the facts alleged show the officer's conduct violated a constitutional right?" Saucier v. Katz, 533 U.S 194, 201 (2001). If a violation of a constitutional right is established, the next question is "whether the right was clearly established." Id. That is, "whether it would be clear to a reasonable officer that his conduct was lawful in the situation he confronted." Id. at 202. The United States Supreme Court has noted that a ruling on immunity should be made early in the proceedings. Id. at 200. When there are disputed issues of material fact, however, a jury must resolve the factual disputes. Ortega v. O'Connor, 146 F.3d 1149, 1154 (9th Cir. 1998); Act Up!/Portland v. Bagley, 988 F.2d 868, 873 (9th Cir. 1993).

The First Amendment of the United States Constitution provides: "Congress shall make no law . . . abridging the freedom of speech." Regarding the right to association, "[o]ne of the foundations of our society is the right of individuals to combine with other persons in pursuit of a common goal by lawful means." Lyng v. Int'l Union, 485 U.S. 360, 366 (1988). The right to association extends to unions as well as the unions' members and organizers. Allen v. Medrano, 416 U.S. 802, 819 n.13 (1974). The right to association encompasses the right of public employees to associate and speak freely and petition openly. Smith v. Arkansas State Highway Employees, Local 1315, 441 U.S. 463, 464-65 (1979).

In a First Amendment retaliation claim, a plaintiff must show: "(1) he was subjected to an adverse employment action . . . , (2) he engaged in speech that was constitutionally protected because it touched on a matter of public concern and (3) the protected expression was a substantial motivating factor for the adverse action." Ulrich v. City and County of San Francisco, 308 F.3d 968, 976 (9th Cir. 2002) (citations omitted).

In the TAC, Plaintiffs allege that other labor organizations agreed to new memoranda of understanding with Defendant City, while the SDPOA went to impasse. (TAC ¶ 70.) According to Plaintiffs, Defendant City only imposed a salary reduction against the SDPOA's DROP employees. (Id.) Plaintiffs allege that Defendant City, City Council Defendants, City Official Defendants, and Aguirre singled out the SDPOA for not accepting the City's final offer. (Id. ¶ 71.) The TAC alleges that LBFO and DROP Plaintiffs were singled out and suffered retaliation because they engaged in protected speech by casting individual union votes against a collectively bargained contract. (Id. ¶ 72.) The TAC alleges that all Plaintiffs suffered retaliation in the form of pay reduction or benefit reduction through the unilateral imposition of the 2005 LBFO. Further, Plaintiffs assert that the 2005 LBFO constituted retaliation against both the LBFO Plaintiffs and DROP Plaintiffs because it imposed wages, hours, and working conditions less favorable than those enjoyed previously. (Id. ¶ 73.) Plaintiffs also assert that Defendants retaliated against LBFO and DROP Plaintiffs by publicly criticizing the SDPOA. (Id. ¶ 74.) Finally, Plaintiffs allege that Defendants retaliated against Plaintiffs by taking at least $100 from the take home pay of each Plaintiff pursuant to the 2005 LBFO. (Id. ¶ 75.)

Looking at these allegations, Plaintiffs have not sufficiently remedied the deficiencies indicated by the Court in its order on the motions to dismiss the SAC. While Plaintiffs allege that the individual members engaged in protected speech by associating with the SDPOA and by casting union votes, the connection between the alleged retaliation and each individual Plaintiff's exercise of protected speech, as opposed to that of the SDPOA, is still too attenuated. Plaintiffs have not sufficiently alleged facts indicating that these individual Defendants singled out and punished individual members of the SDPOA for engaging in protected speech. Because the TAC does not sufficiently allege that any individual Defendants took actions that a reasonable official could have believed constituted a violation of each Plaintiff's First Amendment rights, the individual Defendants are entitled to qualified immunity against Plaintiffs' retaliation claim. Accordingly, after fully considering the issue, the Court GRANTS the Individual Defendants and Aguirre's motion to dismiss the First Amendment Retaliation claim on qualified immunity grounds. The Court will permit another attempt to amend, but Plaintiffs should remedy the deficiencies noted in this order. See, e.g., Royal Ins. Co. of Am., 194 F.3d at 1016-17 & n.9 (when denying leave to amend, court may consider late attempts to add new theories, futility of amendment, and prior attempts to cure deficiencies).

D. California Tort Claims Act

The City, Individual Defendants, and Aguirre argue that Plaintiffs' state law claims are barred because Plaintiffs failed to comply with the procedural requirements of the California Tort Claims Act ("CTCA"). See Cal. Gov't Code § 900 et seq. The Court has already addressed these arguments in its recent order regarding Plaintiffs' compliance with the CTCA. (Doc. No. 120.) Accordingly, the Court DENIES Defendants' motion to dismiss the state law claims on this ground.

E. Violation of Public Policy Under California Government Code § 3502

The City and Individual Defendants, joined by Aguirre and SDCERS, move to dismiss Plaintiffs' eighth claim, in which they allege a public policy violation under the Meyers-Milias-Brown Act ("MMB Act"), Cal. Gov't Code § 3502. As they argued with regard to the SAC, Defendants contend that this statute does not create a private cause of action. Similarly, Aguirre, joined by the City, Individual Defendants, and SDCERS, also moves to dismiss this claim. He argues that, because the Court did not base its previous dismissal on insufficient pleading, but rather found that Plaintiffs had not established that the statute provides for a private right of action, and because the Court did not provide Plaintiffs with leave to amend, the Court should again dismiss this claim. Plaintiffs oppose, arguing that their claim is not for violation of the MMB Act, but for violation of the public policy embodied in the MMB Act. Where, as here, a statute does not explicitly provide for a private action, the proponent must show that the legislature intended to create such a right. See, e.g., Agricultural Ins. Co. v. Super. Ct., 70 Cal. App. 4th 385, 399-400 (1999). Moreover, "when neither the language nor the history of a statute indicates an intent to create a new private right to sue, a party contending for judicial recognition of such a right bears a heavy, perhaps insurmountable, burden of persuasion." Crusader Ins. Co. v. Scottsdale Ins. Co., 54 Cal. App. 4th 121, 133 (1997).

The MMB Act provides that employees shall have the right to form, join, and participate in the activities of an employee organization. Looking at the Act, the legislature set forth a statutory and administrative scheme to apply to labor relations with state and local government employees. See, e.g., Glendale City Employees' Ass'n, Inc. v. City of Glendale, 15 Cal. 3d 328, 336 (1975) ("The Legislature designed the [MMB Act] for the purpose of resolving labor disputes."). Further, employees may remedy violations of the MMB Act by either bringing an unfair labor practice charge with the Public Employment Relations Board, see Cal. Gov't Code §§ 3541.3(i) & 3541.5, or by bringing an action for writ of mandate in state court, depending on the type of public employee involved. See, e.g., Coachella Valley Mosquito and Vector Control Dist. v. Cal. Pub. Employment Relations Bd., 35 Cal. 4th 1072, 1077 ...


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