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Sonoma County Ass'n of Retired Employees v. Sonoma County

United States District Court, Ninth Circuit

January 10, 2014

SONOMA COUNTY ASS'N OF RETIRED EMPLOYEES, Plaintiff,
v.
SONOMA COUNTY, Defendant.

ORDER GRANTING IN PART MOTION TO DISMISS (Docket No. 77).

CLAUDIA WILKEN, District Judge.

Defendant Sonoma County moves to dismiss the second amended complaint (2AC) for lack of subject matter jurisdiction and failure to state a claim. Plaintiff Sonoma County Association of Retired Employees (SCARE) opposes the motion. After considering the parties' submissions and oral argument, the Court grants the motion in part and denies it in part.

BACKGROUND

The following facts are alleged in the 2AC.

SCARE is a nonprofit mutual benefit corporation that "promotes and protects the welfare and interests of the retired employees of Sonoma County." Docket No. 75, 2AC ¶ 11. Roughly fourteen hundred Sonoma County retirees currently claim membership in the organization. Id . ¶ 12.

The County has subsidized its retirees' healthcare benefits since at least 1964. Id . ¶ 14. In August 2008, the County's Board of Supervisors enacted a resolution capping its healthcare benefit contributions at the flat amount of $500 per month for all retirees as well as for certain active employees. Id . ¶ 32. The County planned to phase in this new cap over a five-year period beginning in June 2009. Id . To assist active employees adversely affected by the new cap, the County enacted a resolution in September 2008 providing active employees with an additional $600 monthly cash allowance for healthcare costs. Id . ¶¶ 33-34. Retirees were not provided the same benefit. Thus, at the conclusion of the five-year phase-in period, active employees would be receiving $1, 100 per month from the County in healthcare benefits while retirees would be receiving only $500 per month.

SCARE brought this action in September 2009, alleging that the County's new cap on healthcare benefit contributions would harm many retirees by forcing them to pay significantly higher healthcare premiums while living on a fixed income. In its complaint, SCARE asserted that the new cap constituted a breach of the County's longstanding agreement to pay for its retirees' healthcare benefits costs in perpetuity. SCARE offered two alternative theories to explain how and when the County entered into such an agreement. First, it alleged that the County made a series of promises, dating back to at least 1964, to pay "all or substantially all" of the costs of healthcare benefits for its retirees and their dependents. Second, SCARE alleged that the County entered into a "tie agreement" in 1985 under which it promised to provide its retirees and their dependents with the same level of healthcare benefits that it provided to active management employees. The County denied that it had made a binding promise to provide post-retirement healthcare benefits in perpetuity under either theory of contract formation.

In May 2010, this Court granted, with leave to amend, the County's motion to dismiss SCARE's complaint. Docket No. 34 (Sonoma I). The Court explained that, under California law, municipal governments could only create express contracts for public employment by means of an ordinance or resolution and SCARE had failed to identify in its complaint any such ordinances or resolutions promising healthcare benefits to retirees. In July 2010, SCARE filed an amended complaint in which it sought to cure this deficiency by adding new factual allegations to support its claims. Docket No. 35. SCARE also attached sixty-eight exhibits to its amended complaint which consisted of various resolutions, ordinances, and memoranda of understanding (MOUs) signed by County representatives. According to SCARE, these documents, taken together, established a binding promise by the County to provide healthcare benefits to all retirees in perpetuity.

In November 2010, this Court once again dismissed SCARE's complaint, this time without leave to amend. Docket No. 51 (Sonoma II). After reviewing the amended complaint, the Court found that none of the new factual allegations or various resolutions, ordinances, and MOUs attached to the complaint supported SCARE's claim that the County entered into a binding contract to provide post-retirement healthcare benefits in perpetuity. The Court explained that, while the resolutions and ordinances evidenced the County's longstanding practice of paying all or substantially all of the costs of retirees' healthcare benefits, they did not contain an express promise that the County would continue to do so in perpetuity. Furthermore, the Court noted, none of the attached resolutions or ordinances explicitly adopted the alleged 1985 "tie agreement" and none of the MOUs contained durational language suggesting that they were meant to confer rights in perpetuity. Thus, because SCARE had failed to identify a binding promise on which its contract claims were based despite a second opportunity to do so, the Court dismissed its complaint with prejudice. SCARE filed an appeal the following month.

While that appeal was pending, the California Supreme Court issued its opinion in Retired Employees Association of Orange County, Inc. v. County of Orange , 52 Cal.4th 1171 (2011) (REAOC II).[1] That opinion addressed "[w]hether, 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." Id. at 1176. The Ninth Circuit had certified this question to the California Supreme Court in a case where a county government sought to reduce its contributions to its retired employees' healthcare benefit plans. See Retired Emps. Ass'n of Orange Cnty. Inc. v. County of Orange , 610 F.3d 1099 (9th Cir. 2010) (REAOC I). In REAOC II, the California Supreme Court answered the certified question by holding that "a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution." 52 Cal.4th at 1194.

In February 2013, the Ninth Circuit vacated this Court's November 2010 order of dismissal. SCARE v. Sonoma County , 708 F.3d 1109, 1119 (9th Cir. 2013) (Sonoma III). Although the court of appeals agreed that SCARE's first amended complaint failed to state a claim, it held that SCARE should be granted leave to amend in order to plead that, under REAOC II, the County made an implied promise to provide post-retirement healthcare benefits. Id . The Ninth Circuit explained, "The district court did not have the benefit of REAOC II, but in light of its clarification that a public entity in California can be bound by an implied term in a written contract under specified circumstances, we cannot say that the Association's amendment of its complaint a second time would be futile." Id . It therefore remanded the action "for proceedings consistent with REAOC II." Id.

SCARE filed its 2AC in May 2013. It attached twenty-six new resolutions to the 2AC and asserted that these resolutions - along with the sixty-eight resolutions, ordinances, and MOUs attached to its previous complaint - evinced the "County's clear intent to bind itself to contracts with the Retirees to provide post-retirement healthcare benefits." 2AC ¶ 19. Although SCARE made a handful of minor changes to the text of its complaint, the twenty-six newly added resolutions constituted the principal substantive amendment to its earlier complaint.

In June 2013, the County filed the instant motion to dismiss.

DISCUSSION

I. Subject Matter Jurisdiction

A. Legal Standard

Subject matter jurisdiction is a threshold issue which goes to the power of the court to hear the case. Federal subject matter jurisdiction must exist at the time the action is commenced. Morongo Band of Mission Indians v. Cal. State Bd. of Equalization , 858 F.2d 1376, 1380 (9th Cir. 1988). A federal court is presumed to lack subject matter jurisdiction until the contrary ...


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