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San Diego Police Officers' Association v. San Diego City Employees' Retirement System

June 10, 2009

SAN DIEGO POLICE OFFICERS' ASSOCIATION, ON BEHALF OF ITSELF AND ON BEHALF OF ALL OF ITS MEMBERS, PLAINTIFF-APPELLANT,
v.
SAN DIEGO CITY EMPLOYEES' RETIREMENT SYSTEM; CITY OF SAN DIEGO; SCOTT PETERS; JIM MADAFFER; RALPH INZUNZA; TONI ATKINS; TONY YOUNG; BRIAN MAIENSCHEIN; DONNA FRYE; MICHAEL ZUCCHET; CATHY LEXIN; MARY VATTIMO; TERRI WEBSTER; ED RYAN; P. LAMONT EWELL; MICHAEL UBERUARGA; BRUCE HERRING, DEFENDANTS-APPELLEES.
SAN DIEGO POLICE OFFICERS' ASSOCIATION, ON BEHALF OF ITSELF AND ON BEHALF OF ALL OF ITS MEMBERS, PLAINTIFF-APPELLANT,
v.
SAN DIEGO CITY EMPLOYEES' RETIREMENT SYSTEM; CITY OF SAN DIEGO; SCOTT PETERS; JIM MADAFFER; RALPH INZUNZA; TONI ATKINS; TONY YOUNG; BRIAN MAIENSCHEIN; DONNA FRYE; MICHAEL ZUCCHET; CATHY LEXIN; MARY VATTIMO; TERRI WEBSTER; ED RYAN; P. LAMONT EWELL; MICHAEL UBERUARGA; BRUCE HERRING, DEFENDANTS-APPELLEES.
SAN DIEGO POLICE OFFICERS' ASSOCIATION, ON BEHALF OF ITSELF AND ON BEHALF OF ALL OF ITS MEMBERS, PLAINTIFF-APPELLEE,
v.
SAN DIEGO CITY EMPLOYEES' RETIREMENT SYSTEM, DEFENDANT, SCOTT PETERS; JIM MADAFFER; RALPH INZUNZA; TONI ATKINS; TONY YOUNG; BRIAN MAIENSCHEIN; DONNA FRYE; MICHAEL ZUCCHET; CATHY LEXIN; MARY VATTIMO; TERRI WEBSTER; ED RYAN; P. LAMONT EWELL; MICHAEL UBERUARGA; BRUCE HERRING, DEFENDANTS, AND CITY OF SAN DIEGO, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Southern District of California, Marilyn L. Huff, United States District Court Judge. D.C. Nos. CV-05-01581-H & CV-05-01581-MLH.

The opinion of the court was delivered by: Shadur, Senior District Judge

FOR PUBLICATION

OPINION

Argued and Submitted October 23, 2008 -- Pasadena, California

Before: Consuelo M. Callahan and Sandra S. Ikuta, Circuit Judges, and Milton I. Shadur,*fn1 Senior District Judge.

OPINION

San Diego Police Officers' Association ("Association") appeals the district court's orders granting summary judgment to the City of San Diego ("City"), San Diego City Employees' Retirement System ("Retirement System") and various individuals ("Individual Defendants")*fn2 (collectively "Appellees") on Association's constitutional claims. In addition, Association and Appellees cross-appeal from the district court's final order addressing the possible award of attorneys' fees.

Association's lawsuit charged that (1) Appellees' involvement in approving and enacting a city ordinance that reduced City's contributions to the employees' retirement fund violated Association's contractual right to an actuarially sound pension system and (2) City's imposition of its last, best and final offer ("Final Offer") after the breakdown of 2005 labor negotiations between City and Association violated the latter's vested contractual rights. After extensive briefing by the parties, the district court found that none of the alleged actions affected Association's constitutionally protected rights. It therefore granted summary judgment to Appellees and relatedly entered a final order in which it awarded costs to Appellees as prevailing parties but denied an award of attorneys' fees to any party. We affirm in all respects except for the attorneys' fees issue, which we remand to the district court.

Background

Alleged Underfunding of San Diego's City Pension System

Pursuant to the San Diego City Charter, the San Diego City Council is empowered to set benefits and establish a retirement plan for its employees. That City Charter vests the Board of the Retirement System ("Board") with the power to determine eligibility for receipt of retirement benefits under the system, which establishes a defined benefit pension plan. In that role the Board administers the retirement system and performs various functions related to the plan, including the calculation of annual employer and employee contributions, the management and investment of the plan's funds and the distribution of pension benefits to retired City employees. Membership in the Retirement System is compulsory and a condition of employment for City employees. Retirement benefits under the plan are funded by contributions from both the pension system's members and City, which contributions are in turn invested for the benefit of the Retirement System members. Before 1996 City's annual contribution to the Retirement System was determined by a Retirement System actuary, who set the contribution rate based on actuarial calculations. In its collective bargaining agreement City agreed to subsidize or "pick up" a portion of the employee contribution, in addition to making its employer contribution. Determination of the Retirement System's funded ratio is based upon the current value of the system's assets compared to its future liabilities as calculated by the actuary-any difference between the two constitutes the "unfunded accrued actuarial liability."

In 1996 the Board and City Council approved an Employer Contribution Rate Stabilization Plan, known as "MP1," that changed the way in which City's employer contributions were calculated. According to the terms of MP1, City's annual contribution to the Retirement System was set at an agreed-upon rate that was lower than its actuarially determined contribu- tion rate. In the event the Retirement System's funded ratio fell below a 82.3% "trigger percentage," MP1 required City's contribution rate to be "increased on July 1 of the year following the date of the actuarial valuation in which the shortfall in funded ratio is calculated . . . to restore a funded ratio" back to the 82.3% trigger level.*fn3

As a result of declining financial conditions and losses to the Retirement System fund in 2001, the system's funded ratio dropped and began to approach the 82.3% trigger percentage. To avoid having to pay the full amount to restore the funded ratio to the trigger level by the following year, City sought relief from its contribution obligations as part of the 2002 labor negotiations between City and Association. It sought to condition any increase in benefits and compensation to Association's members on the Board's approval of a proposal easing City's contribution burden under MP1. That new proposal, aptly named MP2, retained the 82.3% trigger percentage but extended City's fixed contribution rate for another five years, during which time City would increase its payment 1% per year. Despite opposition from Association's representative on the Board, MP2 was approved by the Board on November 15, 2002, and three days later City Council adopted an ordinance specifying that City's contributions were to be made at the agreed-upon rate.

2005 Labor Negotiations Between City and Association

In early 2005 City undertook labor negotiations with Association and three other unions, all of whose collective bargaining agreements, each known as a Memorandum of Understanding ("MOU"), were scheduled to expire on June 30, 2005. Acting through its outside labor relations attorney, City engaged in bargaining sessions with the unions over several months with an eye toward a May 16, 2005 deadline for reaching an agreement. Given its financial condition and the pension funding crisis, City's primary goal during negotiations was to obtain financial concessions from the unions to achieve recurring budgetary savings. To that end City originally proposed two options to the unions: a reduction in members' salaries or a reduction of City's subsidy, or "pickup," of the employees' pension contribution.

During the negotiations City discussed different proposals with each of the unions, and the agreements ultimately reached between City and the unions other than Association contained variations as to each union. For example, because some of the unions' members participate in the Deferred Retirement Option Program ("DROP")*fn4 and therefore do not make pension contributions subject to the reduction in pickup, City's proposals to some of the unions, including Association, contained a salary reduction for DROP employees in lieu of a reduction in pickup.

Bargaining sessions between City and Association were unsuccessful. After their last formal bargaining session on May 5, 2005, City and Association met again on May 11, at which time Association requested a final offer from City to present to its members. Despite its expression of reluctance, City presented a Final Offer containing a one year proposal with a 3.2% reduction in the amount of the employees' pickup and an equivalent reduction in the salary of DROP employees, as well as certain changes in the service eligibility requirements for retiree health benefits. On the following day Association formally declared an impasse and requested a formal hearing before City Council. Then on May 16 City Council held an impasse hearing and voted to impose the terms of the Final Offer on Association. On May 17 City voted to enact the Salary Ordinance for Fiscal Year 2005-06, which included the terms of City's Final Offer.

Procedural History of This Litigation

On August 9, 2005 Association filed its Complaint against Appellees, asserting various state law claims as well as federal claims under 42 U.S.C. § 1983.*fn5 On March 21, 2006 Association filed its Third Amended Complaint. On January 3, 2007 Retirement System filed a motion for partial summary judgment, which was then joined by City and Individual Defendants. On February 12, 2007 Association filed a motion for summary judgment asserting statute of limitations defenses, a motion for summary adjudication related to the discovery of Association's injuries and a motion for summary judgment on asserted affirmative defenses. Individual Defendants also filed various motions for summary judgment and partial summary judgment.

After permitting supplemental briefing by Association and extensive argument on the motions for summary judgment, the district court entered a May 18, 2007 order on several of the motions. It granted summary judgment to Individual Defendants on various grounds and granted partial summary judgment to City and the Retirement System on Association's federal constitutional claims arising out of the 2005 labor negotiations, but it declined to address Association's claim as to pension underfunding. Instead the court requested additional briefing on that claim and held further argument on the issue on June 25, 2007. Following that argument the court granted summary judgment on June 26, 2007 to City and the Retirement System on all of Association's remaining federal claims and declined to exercise supplemental jurisdiction over Association's state law claims. On July 2, 2007 Association timely filed a notice of appeal from the district court's May 18 and June 26 summary judgment orders.

On July 12, 2007, after considering the parties' proposed final judgment orders, the district court entered an order permitting the parties "to submit additional briefing regarding costs" and specifically requested that it be provided with authority as to the appropriate apportionment of costs in light of its declination to exercise supplemental jurisdiction over Association's remaining state law claims. In its supplemental brief that followed, Association argued that it was entitled to an award of costs and attorneys' fees. Defendants, on the other hand, addressed only the issue of costs and specifically declined to address Association's arguments regarding the parties' entitlement to attorneys' fees pursuant to Section 1988, noting that the district court had not requested briefing on the right to attorneys' fees and asserting that Fed. R. Civ. P. ("Rule") 54(d)(2) allows just 14 days after entry of judgment to submit any motion in pursuit of such fees.

On August 24, 2007 the district court entered an order finding that defendants as prevailing parties were entitled to all of their recoverable costs incurred during the litigation but that neither side was entitled to recover its attorneys' fees. Final judgment in favor of defendants was entered that same day. Both Association and defendants filed timely notices of appeal of the district court's August 24 order regarding costs.

Association's Appeal

Standard of Review

We review de novo the district court's order granting summary judgment (Buono v. Norton, 371 F.3d 543, 545 (9th Cir. 2004)). In doing so we are governed by the same principles as the district court: whether, with the evidence viewed in the light most favorable to the non-moving party, there are no genuine issues of material fact, so that the moving party is entitled to a judgment as a matter of law (Olsen v. Idaho State Bd. of Med., 363 F.3d 916, 922 (9th Cir. 2004)).

Enactment of MP2

Association claims that its members had a contractual right to an actuarially sound pension plan, so that the enactment of MP2 and the resulting underfunding of the pension fund was an impermissible impairment of that contractual right. Hence Association brought a Contracts Clause claim, a Takings Clause claim and a conspiracy claim on that premise. In response Appellees contend that there is no federal constitutional right under the Contracts Clause to an actuarially sound pension system. They also argue that whether or not that is so, the district court's grant of summary judgment as to Association's underfunding claims should be affirmed because those claims are precluded by McGuigan v. City of San Diego, No. D050291, 2008 WL 4358551 (Cal. Ct. App. Sept. 25, 2008). Because we find McGuigan to be dispositive of Association's underfunding claims, we eschew consideration of the litigants' constitutional dispute.

City and Individual Defendants maintain that the release terms contained in the settlement and final judgment approved in McGuigan bar Association's current claims against them. Although they made the same argument in the district court, that court's opinion correctly found that the settlement agreement and final decision in McGuigan were not final for claim preclusion purposes*fn6 because they were then on appeal. City and Individual Defendants maintained in their brief before us that although the McGuigan action might ultimately preclude recovery by Association, the agreement and judgment there were not yet final for that purpose. Instead they claimed that the January 16, 2003 judgment in Gleason v. San Diego City Employees' Retirement System, No. G1C803779 (Cal. Super. Ct.) also precluded Association's present action.*fn7

After the parties had submitted their appellate briefs but before we heard oral argument, the California Court of Appeal affirmed the settlement agreement and judgment in McGuigan. After oral argument we requested and the parties submitted supplemental briefing on the effect of the Court of Appeal's McGuigan decision. Association did not file a petition for review by the California Supreme Court within the prescribed time limits, so that the McGuigan ...


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