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Marzec v. California Public Employees Retirement System

California Court of Appeals, Second District, Third Division

May 8, 2015

ROBERT MARZEC et al. Plaintiffs and Appellants,
v.
PUBLIC EMPLOYEES RETIREMENT SYSTEM et al., Defendants and Respondents.

[CERTIFIED FOR PARTIAL PUBLICATION[*]]

APPEALS from judgments of the Superior Court of Los Angeles County, Anthony Mohr, Judge.

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COUNSEL

Law Offices of John Michael Jensen and John Michael Jensen, for Plaintiffs and Appellants.

Steptoe & Johnson, Edward Gregory and Jason Levin, for Defendants and Respondents.

OPINION

EDMON, P. J.

These consolidated appeals concern the calculation of retirement benefits under the Public Employees’ Retirement Law (PERL), Government Code section 20000 et seq.[1] Plaintiffs are former police officers and firefighters employed by local public agencies that provide employee retirement benefits through California's Public Employees’ Retirement System (CalPERS). In order to enhance their service retirement benefits, plaintiffs purchased additional years of service credit through one of several optional programs offered by CalPERS. Subsequently, each plaintiff was disabled on the job and took an industrial disability retirement before reaching service retirement age. As a result, CalPERS pays each plaintiff a monthly disability retirement allowance of 50 percent of his or her final compensation. CalPERS does not, however, pay plaintiffs any additional allowance as a result of their purchase of additional years of service credit.

This appeal involves two putative class actions in which plaintiffs contend that their purchase of additional service credit entitled them to enhanced retirement benefits under the PERL. They alleged CalPERS’s failure to pay such enhanced benefits gave rise to a variety of causes of action, including breach of statutory duty, breach of contract, rescission, breach of fiduciary duty, and constitutional claims.[2] In the first action, the trial court sustained

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CalPERS’s demurrer to all causes of action without leave to amend, concluding that plaintiffs had not properly pled an entitlement to the additional retirement benefits they claimed as a matter of statutory, constitutional, or contract law. As to the second action, the trial court granted judgment on the pleadings on the same bases.[3]

We affirm in part. As we discuss, neither the PERL nor plaintiffs’ contracts entitle plaintiffs to the additional retirement benefits they seek, and thus the causes of action for breach of statutory duty and breach of contract fail as a matter of law. Plaintiffs’ causes of action for constitutional torts also fail because, as a matter of law, CalPERS’s interpretation of the applicable statutory provisions does not deny plaintiffs due process or equal protection of law and does not effect an unconstitutional impairment of contract.

We reverse, however, as to the causes of action for rescission and breach of fiduciary duty. Plaintiffs allege that CalPERS failed to disclose the potential loss of the value of purchased service credit if plaintiffs suffered a disability-a disclosure that CalPERS, as a fiduciary, is alleged to have been required to make. We conclude that plaintiffs’ pleading in this regard is sufficient to survive demurrer, and thus the demurrer should have been overruled as to these causes of action.

FACTUAL AND PROCEDURAL BACKGROUND

I.

Background

A. CalPERS Retirement Benefits

CalPERS is a unit of the Government Operations Agency responsible for administering the retirement systems for the State of California and “contracting agencies”-local public agencies that have “elected to have all or part of [their] employees become members of this system and that ha[ve] contracted with [CalPERS] for that purpose.” (See §§ 20001, 20002, 20004, 20022, 20028.) All of the plaintiffs in this action worked as police officers or firefighters for local public agencies that enrolled their employees in CalPERS. (§ 20420.)

The PERL authorizes retirement benefits to CalPERS members. As relevant here, the PERL provides safety members employed by local public agencies (“local safety members”) with two distinct kinds of retirement benefits:

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(1) Service retirement benefit: If a member retires at or after age 50, the member is eligible for a service pension to “equal 3 percent of his or her final compensation at retirement, multiplied by the number of years of patrol service or local safety service subject to this section with which he or she is credited at retirement.” (§ 21362.2, subd. (a).)

(2) Industrial disability retirement benefit: If a member retires before age 50 because of an industrial (job-related) disability, he or she “shall receive a disability retirement allowance of 50 percent of his or her final compensation.” (§ 21413.)[4] Alternatively, the disabled member may “waive[] the right to retire for disability and elect[] to withdraw contributions or to permit contributions to remain in the fund....” (§ 21153.)

B. Right to Purchase Additional Service Credit

At all relevant times, CalPERS members who had served with the United States Armed Forces were permitted to receive credit for such service “in addition to his or her current and prior service credit” by “contribut[ing] in a lump sum or by installment payments... an amount equal to... the contributions he or she would have made to this system for the period for which current service credit is granted." (§§ 21032, 21033; see §§ 21020, 21024.) Such purchased service credit is referred to as “military service credit” (MSC).

Between 2003 and 2012, CalPERS members with at least five years of credited state service were permitted “to make contributions... and receive not less than one year, nor more than five years, in one-year increments, of additional retirement service credit in the retirement system.” (§ 20909, subd. (a).) To receive such credit, members were required to contribute “an amount equal to the increase in employer liability, using the payrate and other factors affecting liability on the date of the request for costing of the service credit.” (§ 21052.) This purchased service credit is referred to as “additional retirement service credit” (ARSC) or “airtime.”

C. PlaintiffsÂ’ Purchases of Additional Service Credit and Subsequent Industrial Disability Retirements

Each of the plaintiffs purchased additional service credit and subsequently took industrial disability retirement before age 50, as follows:

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Plaintiff Robert Marzec worked as a police officer for the Stockton Police Department for approximately 17 years. In 2004, he elected to purchase four years of military service credit based on his previous service with the United States Marines by making a lump sum payment of $23, 709. In August 2010, after suffering a job-related injury, Marzec took an industrial disability retirement and began receiving industrial retirement benefits of 50 percent of his final compensation.

Plaintiff Rachel Healy worked as a police officer for the Stockton Police Department for approximately nine years. In 2005, she elected to purchase five years of ARSC by making a lump sum payment of $31, 360, and rolling over an additional $46, 000 from a deferred compensation account. After she suffered a job-related injury, Healy took an industrial retirement effective September 2009 and began receiving industrial retirement benefits of 50 percent of her final compensation.

Plaintiff Benjamin Esparza worked as a firefighter for the Monrovia Fire Department for approximately 25 years. In 2005, he elected to purchase five years of ARSC by rolling over $76, 436 from his deferred compensation plan. He was injured on the job and took an industrial disability retirement in August 2009. At that time, he began receiving industrial retirement benefits of 50 percent of his final compensation.

Plaintiff Jeffrey Andert worked as a police officer for the Alhambra Police Department for six years. In 2004, he elected to purchase four years of military service credit through bi-weekly installment payments of $269.90, for a total of $77, 190 in principal and interest. Andert was injured on the job in 2006, and in 2007 he asked for, and received, permission to suspend his installment payments. Andert took an industrial disability retirement in May 2008 and began receiving industrial retirement benefits of 50 percent of his final compensation. In August 2008, he permanently suspended all further installment payments.

Plaintiff Neil MacLaren was a firefighter for the Roseville Fire Department for more than 21 years. In 2005, MacLaren elected to purchase two years of ARSC by rolling over $29, 977 from his retirement account. MacLaren was injured on the job and took an industrial disability retirement in 2009, at which time he began receiving industrial disability benefits of 50 percent of his final compensation.

Plaintiff Randy Slaughter was a police officer for the City of Newport Beach Police Department for approximately 17 years. In 2001, Slaughter elected to purchase four years of military service credit by making monthly installment payments of $6, 977 and a lump sum payment of $44, 652. Slaughter took an

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industrial disability retirement in 2004, at which time he began receiving industrial retirement benefits of 50 percent of his final compensation.

Because each of the plaintiffs retired before age 50, none received a service retirement benefit, and none received any additional retirement benefits as a result of his or her purchase of MSC or ARSC.

II.

The Present Actions

Marzec, Healy, and Esparza filed an action on May 18, 2011 (the Marzec action), and filed the operative first amended class action complaint on February 28, 2012. Andert, MacLaren, and Slaughter filed a similar class action complaint (the Andert action) on March 12, 2012. Both actions asserted that plaintiffs were entitled, in addition to their industrial disability retirement allowances (sometimes referred to as “IDR”), to additional retirement benefits associated with their purchases of MSC or ARSC. The actions asserted that neither the PERL nor plaintiffs’ purchase contracts authorized CalPERS to “seize” plaintiffs’ MSC/ARSC investments as a condition of receiving disability benefits, that CalPERS did not adequately advise plaintiffs of this risk of seizure before they invested in MSC or ARSC, and that through its administration of disability and MSC/ARSC benefits, CalPERS treated plaintiffs differently than other similarly situated CalPERS members.

Plaintiffs allege that CalPERS’s failure to pay additional retirement benefits or to return the MSC or ARSC investments gave rise to 12 causes of action: (1) breach of statutory duties; (2) breach of contract; (3) rescission/ restitution; (4) breach of fiduciary duties; (5) denial of equal protection; (6) denial of due process; (7) equitable relief; (8) declaratory relief; (9) accounting; (10) constitutional impairment of contract; (11) estoppel; and (12) other relief, including attorney fees.

III.

CalPERS’s Demurrer in the Marzec Action

CalPERS demurred to the first amended complaint in the Marzec action. In a detailed written opinion, the trial court sustained the demurrer without leave to amend. Although the court said that plaintiffs’ situation is “certainly sympathetic, ” it concluded that none of plaintiffs’ causes of action stated a claim for relief. The court entered a judgment of dismissal, and plaintiffs timely appealed.

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IV.

CalPERS’s Motion for Judgment on the Pleadings in the Andert Action

CalPERS filed a motion for judgment on the pleadings in the Andert action. The motion asserted that plaintiffs’ claims were functionally identical to those in the Marzec case, and therefore the court should grant judgment on the pleadings for the same reasons it sustained the demurrer in Marzec.

The trial court granted the motion for judgment on the pleadings. Plaintiffs timely appealed, and this court ordered the Marzec and Andert appeals consolidated.

STANDARD OF REVIEW

A demurrer is properly sustained “ ‘when the complaint fails to allege facts sufficient to state a cause of action.’ ” (People ex rel. Harris v. PAC Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777 [174 Cal.Rptr.3d 626, 329 P.3d 180] (Harris); see Rope v. Auto-Chlor System of Washington, Inc. (2013) 220 Cal.App.4th 635, 644 [163 Cal.Rptr.3d 392].) "'All properly pleaded, material facts are deemed true, but not contentions, deductions, or conclusions of fact or law....’ [Citation.] Courts may consider judicially noticeable matters... as well. [Citation.]” (Harris, supra, at p. 777.) “Because a motion for judgment on the pleadings is the functional equivalent of a general demurrer, the same rules apply.” (Hightower v. Farmers Ins. Exchange (1995) 38 Cal.App.4th 853, 858 [45 Cal.Rptr.2d 348].)

“We review an order sustaining a demurrer de novo, exercising our independent judgment as to whether a cause of action has been stated as a matter of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125 [271 Cal.Rptr. 146, 793 P.2d 479].) Because a demurrer tests only the legal sufficiency of the pleading, the facts alleged in the pleading are deemed to be true. [Citation.] We do not review the validity of the trial court’s reasoning, and therefore will affirm its ruling if it was correct on any theory. (Ibid.)” (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 337 [179 Cal.Rptr.3d 813].)

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DISCUSSION


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