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City of San Diego v. Richard Haas et al

June 29, 2012

THE CITY OF SAN DIEGO, PLAINTIFF AND RESPONDENT,
v.
RICHARD HAAS ET AL., DEFENDANTS AND APPELLANTS.



(Super. Ct. No. 37-2007-00077604-CU-MC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Jeffrey B. Barton, Judge. Affirmed.

The opinion of the court was delivered by: Nares, J.

CERTIFIED FOR PUBLICATION

In this pension case the City of San Diego (the City) obtained by summary judgment against defendants San Diego City Employees Retirement System (SDCERS), Richard Haas and Benjamin Vernon (together sometimes defendants), a judicial declaration that defendants are ineligible to receive certain "ancillary" retirement benefits. The ancillary benefits at issue on this appeal are: (1) a "13th retirement check," payable whenever there are "excess earnings" available in the retirement system at the end of the year; (2) the Deferred Retirement Option Program (DROP), an alternative method of benefit accrual; (3) the right to purchase up to five years of additional service credits (Service Credits); and (4) retiree medical health benefits (collectively, the Four Benefits).

Before they began their employment with the City, defendants or their labor representatives entered into employment contracts or collective bargaining agreements with the City that provided that employees hired on or after July 1, 2005, were ineligible to receive the Four Benefits. However, it was not until January 17, 2007, that the City passed San Diego Ordinance No. 0-19567 (the Ordinance), which amended the San Diego Municipal Code (SDMC) to reflect that employees hired on or after July 1, 2005, were not eligible for the Four Benefits. The Ordinance stated that it was effective 30 days thereafter, i.e., on February 16, 2007.

Defendants Benjamin Vernon and Richard Haas represent a defense class consisting of all City employees hired on or after July 1, 2005, but before February 16, 2007. The defense class is divided into two subclasses. Vernon represents defense subclass A, which consists of employees who were represented in labor negotiations by a recognized bargaining unit. Employees who were not represented by a labor union are represented by Haas in defense subclass B.

Defendants Haas and Vernon assert on appeal*fn1 that the court erred in granting summary judgment in favor of the City because (1) by its express terms the Ordinance was to apply prospectively; (2) the City did not overcome the presumption that ordinances are to apply prospectively; (3) retroactive application of the Ordinance is unconstitutional because it deprived defendants of vested retirement benefits; and (4) the Ordinance was in violation of article IX, section 143.1 of the San Diego City Charter (City Charter or Charter) which required that it be approved by members of the retirement system.

Defendant George F. Schaeffer has filed an appeal, individually, and in propria persona, asserting that the court erred in certifying the defense class.

We conclude that although the Ordinance operates retroactively, it is not invalid because it only amends the SDMC to reflect the City's existing agreements with defendants. Further, no vote was required under City Charter article IX, section 143.1 for the Ordinance to become effective because defendants never accrued rights to the Four Benefits. We also conclude that Schaefer's individual appeal lacks merit. Accordingly, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND*fn2

A. The City's Exclusive Power To Grant Benefits and Negotiate Labor Agreements

Article III, section 11.2 of the City Charter permits the San Diego City Council (City Council) to enter into multiple-year memoranda of understandings (MOUs) with any recognized City employee organization concerning wages, hours and other terms and conditions of employment. The Charter also authorizes the City to maintain a pension system for its employees through SDCERS. (City Charter, art. IX, § 141.) SDCERS is empowered to issue rules and regulations to administer the pension system and is a separate legal entity from the City. (City Charter, art. IX, § 144.) The City Council, however, possesses the exclusive authority in granting and modifying retirement benefits. (City Charter, art. IX, §§ 141, 146.)

B. Elimination of the Four Benefits for New Hires on or After July 1, 2005

The City has recognized five employee bargaining units: the San Diego Municipal Employees Association (MEA); the San Diego City Firefighters Local 145, IAAF, AFL-CIO (Firefighters); Local 127, American Federation of State, County and Municipal Employees, AFL-CIO (AFSCME); the Deputy City Attorneys Association of San Diego (DCAA); and the San Diego Police Officers Association (POA).

The City negotiated benefit modifications for prospective employees in its summer 2005 collective bargaining efforts with the five bargaining units under the Meyers-Milias-Brown Act (MMBA). Effective July 1, 2005, the City entered into MOUs with the MEA, Firefighters, AFSCME, and the DCAA. The City also negotiated with the POA, but upon reaching an impasse, the City Council imposed the terms of its last, best, final offer (LBFO) on the POA.

In exchange for receiving a fixed retirement allowance formula and other benefits, the MOUs and LBFO provided that City employees hired on or after July 1, 2005 (New Employees) would not be eligible for the Four Benefits. Neither the MOUs nor the LBFO changed any retirement benefits for City employees hired before July 1, 2005.

The AFSCME, Firefighters and MEA MOUs contained implementation provisions. Article 2, section 2 of the MEA MOU states: "The City shall, in a timely manner, complete necessary changes in ordinances, resolutions, rules, policies and procedures to conform to this agreement, using September 30, 2005, as a target date for such completion." Article 3 of the MEA MOU states that its term is from July 1, 2005 to June 30, 2008. Article 22, section 1, states that the MOU "reflects the parties' agreement regarding retirement contribution and benefit changes resulting from meet and confer in 2005." MEA members ratified the MOU shortly after negotiations.

Article 5 of the AFSCME MOU contains a similar implementation provision. Article 2 states that the term of the MOU shall be from July 1, 2005 to June 30, 2008. Article 43, section 1.A, further states that the MOU "reflects the parties' agreement regarding retirement contribution and benefit changes resulting from meet and confer in 2005." AFCSME members ratified the MOU shortly after negotiations.

Article 26 of the Firefighters MOU states, in pertinent part: "The City shall act as soon as possible to make the necessary changes in ordinances, resolutions, rules, policies and grievance procedures to conform to this agreement. All such changes shall be submitted to Local 145 prior to their submittal for implementation to insure [sic] that the proposed changes are consistent with the agreement. All disputes over language shall be governed by the grievance procedure." Article 27 of the Firefighters MOU states that its term is from July 1, 2005 to June 30, 2006. Article 23, section 1, states that the MOU "reflects the parties' agreement regarding retirement contribution and benefit changes resulting from meet and confer in 2005." Firefighters ratified the MOU shortly after negotiations.

The DCAA MOU does not contain an implementation provision. DCAA members ratified the 2005 MOU.

On June 27, 2005, the City Council passed and adopted Resolution No. R-300600, approving the LBFO and ratifying the MOUs entered into by and between the City and its representative bargaining units, to be effective as of July 1, 2005. Resolution R-300600's legislative history states that the parties or their representatives ratified their respective agreements, with the express understanding that New Employees would not be eligible for the Four Benefits.

C. Haas Accepted an Employment Offer with the City That Did Not Include the Four Benefits

The parties stipulated that at all relevant times, it was the City's custom and practice to provide employees who were not members of the bargaining units (Unrepresented Employees) with the same benefits as members of the MEA. Haas was an Unrepresented Employee. Haas was offered the position of deputy chief of public works with the City in a letter dated December 9, 2005. Attached to his offer letter was a document entitled "Benefits Schedule, Deputy Chief Operations Officer" (Benefits Schedule). The "Retirement Benefit" section of the Benefits Schedule does not include the Four Benefits and the offered benefits are identical to those included in MEA MOU. Neither the offer letter nor the Benefits Schedule makes any reference to benefits being defined by any City ordinance. According to Haas, he never received any document from the City explaining his benefits other than the Benefits Schedule. He accepted the position on December 12, 2005.

D. SDCERS Extends the Four Benefits to Defendants

After July 1, 2005, SDCERS advised defendants that, notwithstanding any contrary MOU, contractual obligations, or binding custom and practice, SDCERS would continue to recognize their eligibility to receive the Four Benefits because the City Attorney "had not filed the paperwork" necessary for modification.

E. The City Council Amends the Municipal Code To Confirm Elimination of the Four Benefits

On January 17, 2007, the City Council passed and adopted Ordinance No. 0-19567, which amended the SDMC consistent with the July 1, 2005 benefit changes. In this regard, section 24.1201.1 of the SDMC provides "[m]embers hired or assuming office on or after July 1, 2005, are non Health Eligible." Section 24.1312.1 of the SDMC provides "[the general provision for five-year purchase of creditable service] does not apply to members hired or assuming office after July 1, 2005." Section 24.1402.1 of the SDMC provides "[m]embers hired or assuming office on or after July 1, 2005, may not participate in DROP." Section 24.1503.1 of the SDMC provides "[m]embers hired or assuming office on or after July 1, 2005, shall not be eligible for participation in the annual supplemental benefit program established by this Article."

The Ordinance states that it shall take effect and be in force on the 30th day from and after its final passage. The Ordinance's legislative history includes the City Attorney's Official Report to the Mayor and City Council (Official Report). The Official Report explains that the Ordinance amends the SDMC "to reflect these agreed to and imposed [benefit modifications]" resulting from the 2005 labor negotiations. Among other things, the Official Report states that the City and the bargaining units ratified their respective agreements or unilaterally implemented the LBFO with the express understanding that New Employees would not be eligible for the Four Benefits. It further explains that, as a condition of the benefit modification, the City expressly promised the bargaining units that all new Unrepresented Employees would receive the same benefits as represented employees would under the 2005 MOUs.

City Charter article IX, section 143.1(a) provides that "[n]o ordinance . . . that affects the benefits of any employee under the retirement system shall be adopted without the approval of a majority vote" of City employees. The parties stipulated that no such vote was taken.

F. SDCER Informs the City the Effective Date for the 2005 Benefit Changes Was February 2007

In a letter dated August 3, 2007, SDCERS's general counsel informed the City that it would (1) use an effective date of February 16, 2007, for the 2005 benefit changes, and (2) continue to advise employees hired before that date that they were eligible for the Four Benefits.

Then San Diego City Attorney Michael J. Aguirre responded by letter on August 24, 2007, in which he requested that SDCERS discontinue advising employees that they are eligible for the Four Benefits.

SDCERS did not respond to Aguirre's letter and did not stop approving benefit requests by defendants.

G. SDCERS Approves Vernon and Haas To Purchase Service Credits

In October 2006 defendant Vernon accepted a job with the City of San Diego as a firefighter. He began working for the City by attending the fire academy. On his first day on the job, a representative of SDCERS informed him that, "there was an agreement in 2005 that [the Four Benefits] were not available but that the city attorney had not filed the paperwork so that it was still available to us." On October 16, 2006, Vernon submitted a request to purchase Service Credits. SDCERS approved the request on February 27, 2007.

On or about June 25, 2007, defendant Haas submitted a request to purchase Service Credits. In August 2007 SDCERS approved Haas's request, and he completed his Service Credit purchase in September 2007.

On October 2, 2007, the City advised Haas that the purchase was ineffective and demanded Haas rescind the purchase. Haas refused.

H. Procedural Background

1. The City files suit

The City brought suit against SDCERS, seeking a declaration that City employees first hired between July 1, 2005 and February 16, 2007, are ineligible to receive the Four Benefits. In response, SDCERS brought a demurrer on the basis of misjoinder of parties, asserting that defendants were necessary and indispensable parties to the suit because their property interests in the Four Benefits may be adversely affected by the declaration sought by the City. The court sustained the demurrer, with leave to amend.

The City thereafter filed a second amended complaint (SAC), naming Vernon and Haas individually and as class representatives. The SAC's second cause of action was directed to defendants and prayed for the following relief: "A judicial determination on the second cause of action that the benefit changes described in the July 1, 2005 MOUs and San Diego City Ordinance No. 19567, and San Diego Municipal Code sections 24.1201.1, 24.1312.1, 24.1402.1, and 24.1503.1, apply to all new City employees hired on or after July 1, 2005."

2. The court certifies a defense class

In March 2009 the court certified the City's second cause of action as a defense class action, consisting of two subclasses. The ruling defined subclass A as: "All City employees first hired on or after July 1,2005, and before February 16, 2007, employed in positions within any bargaining unit represented by [MEA], [Firefighters], [AFSCME], [POA], and [DCAA]." Subclass B was defined as: "All City employees first hired on or after July 1, 2005, and before February 16, 2007, who are not members of at least one of the representative bargaining units described in Sub-class A above."

The court found that the defense class alleged by the City was clearly defined and ascertainable. The court further found that common questions of fact and law predominated over individual ones because resolution of the following issues would determine the defendants' entitlement to the Four Benefits: whether the effective date of benefit changes is July 1, 2005 or February 16, 2007; whether the Ordinance is applicable retroactively; and whether the 2005 MOU and LBFO terms are binding on all subclass members. The court found that differences in the MOUs' language was immaterial, as they would not affect the central legal issue─the effective date of modification.

The court also found there was adequate representation in that the class representatives' defenses were typical of the class, class counsel were experienced and diligent, and any purported conflict of interest was illusory. The court found that many of the due process concerns that arise out of defense class actions, such as collusion and inadequate notice, were not present here because defendants would receive actual notice of the pending action, and pension litigation has been subjected to significant public scrutiny. Finally, given the court's conclusion that all 595 class members were necessary parties, the court found that class treatment was clearly in the interests of the parties and the court, and thus certification was appropriate under the heightened standard for a defense class action.

3. The parties' cross-motions for summary judgment

The City moved for summary adjudication on the second cause of action against defendants on the ground that no defense existed because the undisputed facts demonstrated that defendants had not acquired vested rights to the Four Benefits. Defense subclass A members were bound by the 2005 MOUs or LBFO that modified their eligibility for the Four Benefits, and POA members were collaterally estopped from relitigating issues concerning the LBFO due to litigation between the City and the POA in the federal courts. The City asserted that defense subclass B members were either covered by the MEA MOU by virtue of custom and practice or they accepted employment offers from the City that did not include the Four Benefits as consideration. Alternatively, assuming all defendants gained vested rights to the Four Benefits before employment, they consented to the benefit modifications through these contractual arrangements.

Vernon moved for summary judgment on the City's second cause of action, arguing that he was entitled to the Four Benefits because he was hired before enactment of the Ordinance, which must be construed to operate prospectively because if construed to operate retroactively the Ordinance would be invalid for failure to comply with section 143.1(a) of the City Charter. He also argued the Ordinance violated the contract clauses of the federal and state Constitutions by impairing his vested rights to the Four Benefits.

In his summary judgment motion on the City's second cause of action, Haas argued that: (1) the Ordinance is void for failure to comply with Charter section 143.1(a); (2) the Ordinance must be construed to operate prospectively, not retrospectively; and (3) he could establish one of his affirmative defenses, namely, ...


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