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City of South Lake Tahoe Retirees Association v. City of South Lake Tahoe

United States District Court, E.D. California

July 25, 2016



         Plaintiff City of South Lake Tahoe Retirees Association (CSLTRA) filed this action on December 1, 2015, against defendant City of South Lake Tahoe (the City), seeking declaratory and injunctive relief, and compensatory damages with respect to changes made to the health benefits for current and retired public servants of the City. The case is now before the court on the City’s motion to dismiss based on Federal Rules of Civil Procedure 12(b)(1), (6) and (7). Mot., ECF No. 8. CSLTRA opposed, Opp’n, ECF No. 11, and the City replied. Reply, ECF No. 19. On May 18, 2016, the court held a hearing on the motion; Nira Doherty and Tom Watson appeared for the City. There was no appearance on behalf of plaintiff. Subsequently, plaintiff requested another hearing due to its counsel’s calendaring mistake. ECF No. 21. The court denied the request and the matter was submitted. ECF No. 22.

         As explained below, the court GRANTS defendant’s motion to dismiss in part, with leave to amend, and DENIES in part.


         CSLTRA is a nonprofit California corporation comprising and representing approximately 160 public employee retirees of the City on issues including “retiree hospitalization, medical, pharmaceutical, dental, vision, and retirement benefits.” Compl. ¶ 4. CSLTRA’s purposes include advocating for the interests of its members regarding their vested post-employment City benefits, communicating with relevant parties regarding retirees’ post-employment benefits and distributing and collecting information relating to vested post-employment benefits to and from its members. Id.

         CSLTRA and its members and directors engaged in research, study, outreach and communication with the City regarding changes to retiree health benefits adopted by the City Council through a city resolution, which went into effect on January 1, 2015 (the Resolution).

         On June 29, 2015, CLSTRA’s counsel served a Government Tort Claim, under California Code § 900 et seq., on the City, City Council and City Manager. Id. ¶ 8; Ex. A, ECF No. 12. On July 29, 2015, the City, through the City Attorney, denied liability and the claim, exhausting plaintiff’s remedies. Ex. B, ECF No. 12.

         Under various collective bargaining agreements, known as Memorandums of Understanding (MOUs), between the labor organizations representing the retirees during their employment and the City, the retirees were contractually guaranteed the right to continue membership in the City’s health care plan. Compl. ¶ 10. CLSTRA alleges that each MOU promises that “[c]overage shall continue indefinitely, however, the City health plan shall become a secondary plan to all components of Medicare at the time the retiree is eligible for the Medicare program.” Id. ¶ 13.

         There has been one medical/dental plan for all employees and retirees since 1988, id. ¶ 12, although pre-1993 vesting schedules varied by bargaining unit. Id. ¶ 10. Before 1993, under the vesting schedules specified in the different MOUs, which were adopted by corresponding city resolutions, the City subsidized a portion of the retirees’ health insurance premiums at active employee medical plan rates. Id. The vesting schedules reflect an escalating premium subsidy correlating to the retirees’ dates of hire and years of public service with the City. Id.

         Starting in 1993, the City and the active employee associations adopted a uniform vesting schedule for retiree healthcare benefits for all bargaining units. Id. ¶ 11. Under the current vesting schedule for employees hired prior to 2008, a retiree with twenty-five (25) years of City service is entitled to “maintain membership in the City medical/dental” health plan with a 100 percent City-paid premium. Id. A retiree with twenty (20) years of service may maintain membership in the plan with 75 percent of the premium paid by the City, plus an additional 5 percent paid for each additional year of service. Id. A retiree with fifteen (15) years of service is entitled to a 50 percent City-paid premium, plus an additional 5 percent per additional year of service. Id. A retiree with ten (10) years of service is entitled to 25 percent City-paid medical and dental coverage, with an additional 5 percent paid by the City for each additional year of service. Id.

         The retiree health benefit program was duly bargained for as part of the collective bargaining process governed by California’s Meyers-Milias-Brown Act (MMBA), California Government Code sections 3500-3511. Id. ¶ 15. Once the MOUs were adopted by the City Council, the City and its officials had a duty to adhere to the terms of the MOUs. Id.

         The City stated in writing there was “no maximum duration on this coverage; you may continue these benefits for as long as our plan continues and you continue payment of your monthly premiums in a timely manner.” Id. ¶ 17. The City also stated in writing to retirees that, “you will receive the same level of benefits [which] we provide for active employees.” Retirees were told, “you may elect to continue the same medical and dental coverage as active employees . . . .” Id. ¶ 18.

         The City did not reserve the right to terminate, eliminate, reduce, or modify these retiree benefits. Id. ¶ 19. The City did not reserve the right to alter the benefits to retirees or provide different health coverage to retirees than to active employees. Id.

         During the retirees’ employment and retirement, they have fully performed all obligations under the respective MOUs earning the right to the vested and continuing health benefits provided under the MOUs. Id. ¶ 21. The retirees have met all obligations and preconditions to maturation and vesting of their rights in the retirement health benefits program. Id.

         Starting on January 1, 2015, the active employee health plan was changed to a “tiered plan, ” in which the active employees choose a level of coverage and the City compensates them through cash subsidies if they choose higher tiers of coverage. Id. ¶ 23. Retirees, however, were assigned to the lowest level of coverage, and were not given the option of choosing a higher level of coverage with their vested City contributions. Id. The new plan significantly reduces the retirees’ health plan coverage and raises costs to retirees. Id.

         Also starting on January 1, 2015, retirees were removed from the City’s dental plan unless they paid the premium. Id. ¶ 25.

         Before passing the Resolution, the City negotiated these changes with labor organizations representing active employees, but not the retirees. Id. ¶ 29.

         On June 29, 2015, CSLTRA served notice of its claim on the City, the City Council and the City Manager. Id. ¶ 8. On July 29, 2015, the City, through the City Attorney, denied liability and the claim. Id.

         By its complaint, CSLTRA seeks preliminary and permanent injunctions prohibiting the City from implementing the changes to retiree medical benefits adopted in the Resolution; a mandatory injunction requiring the City to restore the vested retiree health benefit program to the status quo as of December 31, 2014; a judicial declaration under 28 U.S.C. § 2201 that retirees have a vested property interest in the health benefit program and that each Medicare-eligible retiree will maintain City-paid supplemental coverage for any plan he or she chooses for the rest of that person’s life and the lives of eligible dependents; monetary damages to compensate retirees for additional medical/dental insurance costs and premiums expended because of the Resolution; attorney’s fees under California Civil Code section 1021.5, California Government Code sections 800 and 31536, 42 U.S.C. § 1983 and other relevant statutes; and costs of suit incurred.

         II. RULE ...

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