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San Diego City Firefighters, Local 145, Afl-Cio, et al v. the Board of Administration of the San Diego City Emoployees

May 25, 2012

SAN DIEGO CITY FIREFIGHTERS, LOCAL 145, AFL-CIO, ET AL., PLAINTIFFS AND APPELLANTS,
v.
THE BOARD OF ADMINISTRATION OF THE SAN DIEGO CITY EMOPLOYEES' RETIREMENT SYSTEM ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of San Diego County, Yuri Hofmann and Lisa Foster, Judges. (Super. Ct. No. 37-2009-00099066- CU-WM-CTL)

The opinion of the court was delivered by: Benke, Acting P. J.

CERTIFIED FOR PUBLICATION

Affirmed.

This lawsuit involves two facets of the San Diego City Employees' Retirement System (the SDCERS) that defendant and respondent City of San Diego (City)*fn1 retroactively repealed after the Internal Revenue Service (IRS) issued a compliance statement under its Voluntary Correction Program identifying certain aspects of the SDCERS as noncompliant with section 401(a) of the Internal Revenue Code (26 U.S.C. § 401(a)), which sets forth requirements for qualified retirement plans.*fn2

Plaintiff and appellant San Diego City Firefighters, Local 145, IAFF, AFL-CIO (Local 145), a union, and individual plaintiffs and appellants Michael Ditomaso, Leslie Gallo, Adolfo Gonzales, Timothy Harris, Glen Mackie, Jon McDonald, Matthew Praizner, Don Rock and Steve Willcuts (Firefighter Plaintiffs), a group of city firefighters and Local 145 members impacted by City's repeal of the SDCERS program that allowed them to convert their annual leave to service credit for the purpose of calculating retirement benefits, asserted claims against City and defendant and respondent The Board of Administration of the San Diego City Employees' Retirement System (the SDCERS Board), including for breach of contract, unconstitutional impairment of contract and declaratory relief. They also sought a writ of mandate compelling City and the SDCERS Board to reinstate their benefits under the repealed program.

Plaintiff and appellant Ronald Saathoff is a retired city fire captain who, until 2008, served as president of Local 145. Saathoff also was impacted by City's repeal of the SDCERS program that calculated retirement benefits of incumbent presidents of municipal employee unions (including Local 145) based on a combination of their salary from the city and their salary from serving as union president. Saathoff and Local 145 asserted claims against City arising from the repeal of that program, including for breach of contract, unconstitutional impairment of contract and declaratory relief, and sought a writ of mandate compelling City and the SDCERS Board to reinstate the program and Saathoff's benefits under it.

Saathoff, Local 145 and Firefighter Plaintiffs (together, appellants) contend that the trial court erred in sustaining without leave to amend the demurrers of City and the SDCERS Board. As we will explain, we disagree and conclude the trial court properly sustained the demurrers without leave to amend. Judgment affirmed.*fn3

FACTUAL AND PROCEDURAL BACKGROUND

"San Diego is a charter city. It maintains a pension plan for its employees, the [SDCERS]. (San Diego City Charter, art. IX, § 141; San Diego Mun. Code, § 24.0101.) The SDCERS is a defined benefit plan in which benefits are based upon salary, length of service, and age. (San Diego Mun. Code, §§ 24.0402-24.0405.) The plan is funded by contributions from both City and its employees. (San Diego City Charter, art. IX, § 143; San Diego Mun. Code, § 24.0402.) Membership is compulsory. (San Diego Mun. Code, § 24.0104, subd. (a).)" (Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1063.) As noted ante, this lawsuit concerns two aspects of the SDCERS that City repealed by ordinance, which we will detail below.

A. Incumbent President Program

On October 21, 2002, the city council adopted Resolution No. R-297212. It provided that the retirement benefit formula for each of the incumbent presidents of three unions that represent municipal employees would be based on each of those individual's highest one-year combined salaries from their city employment and their union employment, not to exceed the annual base salary of City's labor relations manager (the Incumbent President Program). At the time, Saathoff was the incumbent president of one of those unions, namely, Local 145.

Consistent with Resolution No. R-297212, in October 2003 City entered into a written agreement with Saathoff stating that effective July 1, 2001, Saathoff's salary for purposes of calculating his retirement benefits would be based on his combined City and Local 145 salary, not to exceed the annual base salary of the city labor relations manager, and providing for employer and employee contributions to the SDCERS to be based on that salary amount (the Saathoff Agreement). According to Saathoff, he made lump-sum and biweekly contributions to the SDCERS based on the Saathoff Agreement.

In December 2007, the IRS issued a compliance statement (the IRS Compliance Statement) pursuant to its Voluntary Correction Program,*fn4 which identified several aspects of the SDCERS that did not comply with Internal Revenue Code section 401(a).*fn5 The IRS Compliance Statement identified the Incumbent President Program, among others, as a non-complying aspect of the SDCERS.

Specifically, the IRS Compliance Statement stated: "[T]he terms of the [SDCERS] provided special retirement benefits to past and current union presidents . . . that were not permitted by the [Internal Revenue] Code. Under [Internal Revenue Code] section 401(a), retirement benefits in a qualified plan can only be provided to employees of an employer and such benefits are generally based solely on service with and compensation paid by such employer. Specifically, the following problems were noted: [¶] . . . [¶] (c) Starting in 2002, the Incumbent President Program allowed compensation that was paid to the union presidents by the Unions to be counted in the determination of retirement benefits under the [SDCERS], and such amounts would be combined with any other compensation paid by the [City] subject to a specified dollar cap."

The IRS Compliance Statement also described the corrective action to be taken regarding the Incumbent President Program, including that "[City] will amend the [SDCERS] retroactively to remove any provisions relating to . . . the Incumbent President Program" (italics added) and "[t]he resulting changes to the [SDCERS] will indicate that . . . retirement benefits would be based solely on paid compensation and service associated with [City] or other participating employers."

Under the terms of the IRS Compliance Statement, the IRS would not pursue the sanction of disqualification of the SDCERS based on the qualification failures described therein, conditioned on "the completion of all corrections described" within 150 days.

By affixing their representatives' signatures to the IRS Compliance Statement, both City and the SDCERS Board indicated their agreement to its terms on December 20, 2007.

In April 2008, the city council passed Ordinance No. O-19740 to implement the corrections outlined in the IRS Compliance Statement. Among other things, Ordinance No. O-19740 retroactively terminated the Incumbent President Program and provided that a union president's base compensation for purposes of retirement benefits "will not include any amounts paid by the labor organization."

B. Annual Leave Conversion Program

A July 2002 memorandum of understanding between Local 145 and City (the 2002 MOU) specified certain changes to the SDCERS, including that employees in the bargaining unit (i.e., the city firefighters represented by Local 145) "will be allowed to convert annual leave cash equivalent to retirement service credit on a pre-tax basis." The 2002 MOU also provided that "[e]mployees in the bargaining unit will no longer be eligible to exercise any cash out feature of annual leave accrued from July 1, 2002 prospectively" (the Annual Leave Conversion Program).

The Annual Leave Conversion Program was codified in former section 24.1310, subdivision (c) of the San Diego Municipal Code by Ordinance No. O-19126 adopted by the city council in December 2002.*fn6

Ordinance No. O-19126 stated that "[a]ny aspect of this ordinance affecting the retirement benefits shall take effect upon approval by the Membership of the Retirement System pursuant to [City] Charter section 143.1 . . . ." The city charter, in turn, provided that "[n]o ordinance amending the retirement system which affects the benefits of any employee under such retirement system shall be adopted without the approval of a majority vote of the members of said system." (Former San Diego City Charter, art. IX, § 143.1.) In December 2002, a vote of the SDCERS members was held to approve the Annual Leave Conversion Program and other changes to the SDCERS. Out of a total of 10,311 persons eligible to vote, 2,228 persons responded, with 2,193 persons voting in favor of the changes and 35 persons voting against them.

The Annual Leave Conversion Program was put into effect, and Firefighter Plaintiffs each participated in the program. Specifically, Firefighter Plaintiffs each completed and signed a form indicating that he or she wished to convert his or her eligible annual leave hours as payment for the purchase of retirement service credit.*fn7

The IRS Compliance Statement identified the Annual Leave Conversion Program as noncompliant with section 401(a) of the Internal Revenue Code. As described in the IRS Compliance Statement, "[s]tarting in the plan year that ended in 2003, the terms of the [SDCERS] were amended to provide for an impermissible cash or deferred arrangement in violation of [Internal Revenue Code] section 401(a) in regard to the [Annual Leave Conversion Program][*fn8 ] that was offered to participants who were members of [Local 145] bargaining unit." As corrective action, the IRS Compliance Statement specified: "The [City] will amend the [SDCERS] retroactively to remove any provisions relating to the [Annual Leave Conversion Program]. [¶] . . . [¶] This change will remove the impermissible cash or deferred arrangement from the [SDCERS]." (Italics added.)

Ordinance No. O-19740 implemented the retroactive removal of the Annual Leave Conversion Program by repealing effective July 1, 2002, section 24.1310, subdivision (c) of the San Diego Municipal Code.

According to appellants, after terminating the Annual Leave Conversion Program City informed members of Local 145 that it would restore members' annual leave and would pay retired members a lump sum equivalent to any annual leave they had converted to retirement service credit.

C. Lawsuit against City and the SDCERS Board

Within a year after Ordinance No. O-19740 repealed the Incumbent President Program and the Annual Leave Conversion Program, appellants filed written claims with City pursuant to Government Code section 945.4 seeking compensation and specific performance from City. City did not respond to the claims, and thus they were deemed to have been denied by City. (Gov. Code, § 912.4, subd. (c).)

Appellants then commenced this litigation by filing, in a single pleading, a verified petition for writ of mandate and a complaint against City and the SDCERS Board.

Firefighter Plaintiffs and Local 145 sought a writ of mandate against City and the SDCERS Board seeking to rescind the repeal of the Annual Leave Conversion Program and to reinstate the corresponding retirement service credit (second cause of action). Firefighter Plaintiffs and Local 145 also asserted claims arising from the repeal of the Annual Leave Conversion Program for (1) breach of contract against City (eighth cause of action); (2) unconstitutional impairment of contract against City and the SDCERS Board (fourth cause of action); (3) violation of public policy against City (sixth cause of action); (4) declaratory relief against City and the SDCERS Board (fourteenth cause of action); and (5) promissory estoppel against City (sixteenth cause of action). Firefighter Plaintiffs (without Local 145) asserted a claim for breach of contract against the SDCERS Board (ninth cause of action). Ditomaso (without the other Firefighter Plaintiffs) asserted a claim for breach of fiduciary duty against the SDCERS Board (twelfth cause of action).

Based on the repeal of the Incumbent President Program, Saathoff and Local 145 sought a writ of mandate against City and the SDCERS Board (first cause of action). They also asserted claims for (1) breach of contract against City (seventh cause of action); (2) unconstitutional impairment of contract against City (third cause of action); (3) violation of public policy against City (fifth cause of action); (4) declaratory relief against City and the SDCERS Board (thirteenth cause of action); and (5) promissory estoppel against City (fifteenth cause of action).*fn9

Arising out of the repeal of both the Incumbent President Program and the Annual Leave Conversion Program, appellants asserted a single negligence claim against City (tenth cause of action).

The trial court sustained demurrers filed by City and the SDCERS Board to each of the causes of action in the petition/complaint. The trial court also denied leave to amend the petition/complaint and it entered judgment and orders of dismissal in favor of City and the SDCERS Board.

DISCUSSION

I

Standard of Review

" 'On appeal from an order of dismissal after an order sustaining a demurrer, our standard of review is de novo, i.e., we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.' " (Los Altos El Granada Investors v. City of Capitola (2006) 139 Cal.App.4th 629, 650.) "A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground." (Carman v. Alvord (1982) 31 Cal.3d 318, 324.) In reviewing the petition/complaint, "we must assume the truth of all facts properly pleaded by the plaintiffs, as well as those that are judicially noticeable." (See Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814.)

Further, "[i]f the court sustained the demurrer without leave to amend, as here, we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. [Citation.] If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred. (Ibid.) The plaintiff has the burden of proving that an amendment would cure the defect. (Ibid.)" (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) "[S]uch a showing can be made for the first time to the reviewing court [citation] . . . ." (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.)

II

Saathoff's and Local 145's Claims against City Arising from the Repeal of the Incumbent President Program

We first examine the claims against City based on the repeal of the Incumbent President Program.

A. Claims Based on the Existence of a Valid Contract

Except for claims for negligence and promissory estoppel, each of the causes of action against City by Saathoff and Local 145 depend on the existence of a valid contract establishing Saathoff's right to the benefits provided by the Incumbent President Program. Specifically, the existence of a valid contract is necessary for Saathoff and Local 145 to prevail on their claims of breach of contract (seventh cause of action), unconstitutional impairment of contract (third cause of action)*fn10 and violation of public policy (fifth cause of action).*fn11 Further, because the cause of action for writ of mandate (first cause of action) seeks an order enforcing City's alleged obligation to provide Saathoff with benefits under the Incumbent President Program, and because the cause of action for declaratory relief (fifteenth cause of action) seeks a declaration establishing that same obligation, those causes of action also fail if no valid contract exists establishing City's obligation.

Saathoff and Local 145 identify two possible bases for City's contractual obligation: Resolution No. R-297212 and the Saathoff Agreement. We consider each in turn.

1. Resolution No. R-297212

As we have explained, by adopting Resolution No. R-297212 City purported to create the Incumbent President Program as part of the SDCERS. Under established law, a public agency's pension plan may give rise to a contractual obligation on the part of the public agency. (See Miller v. State of California (1977) 18 Cal.3d 808, 814 ["Pension rights . . . are deferred compensation earned immediately upon the performance of services for a public employer '[and] cannot be destroyed . . . without impairing a contractual obligation. Thus the courts of this state . . . have uniformly held that pension laws . . . establish contractual rights.' "]; see also Betts v. Board of Administration (1978) 21 Cal.3d 859, 864 (Betts); Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131.) City argues, however, that the Incumbent President Program did not become part of the SDCERS and thus cannot give rise to a contractual obligation. We agree.*fn12

As City points out, the city charter sets forth a specific method for creating benefits under the SDCERS, which was not followed when the Incumbent President Program was adopted. The city charter states that "[t]he Council of the City is . . . authorized . . . by ordinance to establish a retirement system . . . ." (San Diego City Charter, art. IX, § 141, italics added.) There is a substantial difference between a resolution and an ordinance: " '[A] resolution . . . is ordinarily not equivalent to an ordinance. A resolution is usually a mere declaration with respect to future purpose or proceedings . . . . An ordinance is a local law which is adopted with all the legal formality of a statute.' [Citations.] A resolution adopted without the 'formality' required of an ordinance cannot be deemed an ordinance." (City of Sausalito v. County of Marin (1970) 12 Cal.App.3d 550, 565-566.) " ' " 'Resolution' denotes something less formal. It is the mere expression of the opinion of the legislative body concerning some administrative matter for the disposition of which it provides. Ordinarily it is of a temporary character, while an ordinance prescribes a permanent rule of conduct or of government." [Citation.] ' " (County of Del Norte v. City of Crescent City (1999) 71 Cal.App.4th 965, 979.)

Consistent with the distinction between ordinances and resolutions, the version of the city charter when Resolution No. R-297212 was adopted in 2002 set forth several formal requirements for ordinances, but not for resolutions, including that (1) with certain exceptions, ordinances shall be passed only after 12 calendar days have elapsed between the day of their introduction and the day of their final passage; (2) each ordinance shall be read in full prior to the final passage of such ordinance, unless the requirements for dispensing with such a reading have been satisfied; (3) the yeas and nays shall be taken upon the passage of all ordinances and entered upon the journal of the proceedings of the city council; and (4) apart from certain exceptions (e.g., validly declared emergency measures), ordinances take effect not less than 30 days from the date of their passage. (Former San Diego City Charter, art. III, §§ 16, 17.)

In addition to the requirement that the provisions of the SDCERS be established by ordinance, the city's charter also required a vote of the SDCERS members to approve an amendment to the SDCERS. (Former San Diego City Charter, art. IX, ยง 143.1.) It is undisputed that ...


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