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Sacramento County Retired Employees Association; et al v. County of Sacramento

March 31, 2012



This matter comes before the court upon defendant's motion to dismiss plaintiffs' complaint for failure to state a claim. (ECF 8.) This matter is decided without a hearing. For the following reasons, defendant's motion is denied.


Since 1980, defendant has provided medical and dental insurance premium subsidies that assisted County retirees with their medical and dental insurance premiums through the Sacramento County Employee Retirement System ("SCERS"). (Compl. ¶ 2.) From 1993 to 2002, the Sacramento County Board of Supervisors ("Board") provided the subsidies "by resolution and set the amount at the highest HMO premium for non-Medicare eligible retirees." (Id.) The Board froze the subsidy in 2003 at a maximum of $244 per month for medical insurance and a flat rate of $25 per month for dental insurance premiums, without distinguishing between former employees based on management status or union representation. (Id.) In 2007, the Board adopted its Retiree Medical and Dental Insurance Program Administrative Policy for 2008, eliminating subsidies for employees who retired after May 31, 2007. (Id. ¶ 4; Mot. at 7.) Six unions representing their members who were County employees challenged this action before the California Public Employment Relations Board ("PERB"), which issued a decision on June 30, 2009, ordering defendant to rescind the subsidy cut. (Compl. ¶¶ 4-5.) The Board did so, but only for those current and prospective retirees who were represented by the unions in the claim before the PERB. (Id. ¶ 8.) In 2010, the Board reduced the medical insurance subsidy to a maximum of $144 per month and eliminated the dental insurance subsidy for employees who had retired prior to June 1, 2007. (Id. ¶¶ 3, 7.) In 2011, the medical insurance subsidy was reduced to a maximum of $80.64 per month. (Id. ¶ 3.)

Plaintiffs filed their purported class action complaint on behalf of four subclasses*fn1 on February 8, 2011. (ECF 1.) They allege four causes of action on behalf of themselves and their purported subclasses: 1) violation of the contract clause of Article I, Section 10 of the U.S. Constitution; 2) violation of the contract clause of Article I, Section 9 of the California Constitution; 3) violation of the equal protection clause of the Fourteenth Amendment to the U.S. Constitution; and 4) violation of the equal protection clause of Article I, Section 7 of the California Constitution.

Defendant filed the present motion to dismiss in lieu of an answer on April 1, 2011. (ECF 8.) Plaintiffs filed their opposition on May 23, 2011. (ECF 15.) Defendant filed its reply on May 26, 2011. (ECF 18.) Plaintiffs filed a statement of supplemental authorities on November 22, 2011 (ECF 31),*fn2 to which defendant has not responded.


A. Standard

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," FED. R. CIV. P. 8(a)(2), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action.'" Id. (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

In making this context-specific evaluation, this court must construe the complaint in the light most favorable to the plaintiff and accept as true the factual allegations of the complaint. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555), nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001). A court's consideration of documents attached to a complaint or incorporated by reference or matter of judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003); Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); compare Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss, generally court is limited to face of the complaint on 12(b)(6) motion).

B. Application 1. First and Second Causes of Action

Defendant contends plaintiffs' first and second causes of action must be dismissed because there is no express contract and it cannot be bound by an implied contract. (Def.'s Mot. at 9.) Relying on the language in its policies and the County Employee Retirement Law of 1937 ("CERL"), Cal. Gov't Code § 31450, et seq., defendant further maintains that retirees do not have contractually vested rights to particular levels of compensation. (Id. at 10-12.) Defendant argues that as there is no contract, there can be no constitutional contractual impairment. (Id. at 12.) Plaintiffs counter that there is an implied contract and they do have vested rights. (Pls.' Opp'n at 1.)

Since defendant filed its motion, there has been a development in the common law that governs plaintiffs' contract-based claims. To wit, the Central District granted the county's motion for summary judgment in Retired Employees Association of Orange County v. County of Orange, 632 F. Supp. 2d 983, 987 (C.D. Cal. 2009), finding that "California courts have refused to find public entities contractually obligated to provide specified retirement benefits . . . in the absence of explicit legislative or statutory authority," which decision was appealed to the Ninth Circuit. See Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange, 610 F.3d 1099 (9th Cir. 2010). The Ninth Circuit certified the following question to the California Supreme Court: "Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees." See Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange, 52 Cal. 4th 1171, 1176 (2011). The California Supreme Court found "under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution." Id. at 1194.*fn3 The state court further concluded there is no requirement for "any particular formality in the fixing of employee compensation." Id. at 1184. However, it did not address whether a county "may form an implied contract with its employees on matters of compensation," which the court found "must be addressed by resolution." Id. at 1185. The court did find that "implied terms concerning compensation" are recognized in spite of the resolution requirement. Id. Moreover, the court found that "[v]esting remains a matter of the parties' intent," stating "implied rights to vested benefits should not be inferred without a clear basis in the contract or convincing extrinsic evidence." Id. at 1189, 1191. Following the California Supreme Court's answer to the certified question, the Ninth Circuit remanded the Orange County case to the Central District, with instructions that the district court conduct further proceedings consistent with the state supreme court's answer. See Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange, 663 F.3d 1292, 1292 (9th Cir. 2011). The Central District case is pending. Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange, No. 8:09-cv-00098-AG-MLG (C.D. Cal.).

Accordingly, defendant's argument that counties cannot be bound by implied contracts to provide compensation has been rejected, as have its arguments that "retiree health benefits are not vested" and "[w]here there is no statute or legislative enactment, courts have uniformly found there is no vested right to continuation of a specific benefit."*fn4 See Retired Emps. Ass'n of Orange Cnty., 52 Cal. 4th at 1194 ("[U]nder California law, a vested right to health ...

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