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Nowicki v. Contra Costa County Employees' Retirement Association

United States District Court, N.D. California

June 27, 2017

PETER J. NOWICKI, Plaintiff,
v.
CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION, et al., Defendants.

          ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS THE COMPLAINT AND GRANTING LEAVE TO AMEND Re: Dkt. Nos. 31, 36

          SUSAN ILLSTON United States District Judge

         On June 9, 2017, the Court held a hearing on defendants' motions to dismiss plaintiff's complaint. For the reasons set forth below, the Court GRANTS defendants' motions, and GRANTS leave to amend. If plaintiff wishes to amend the complaint, plaintiff must do so by July 10, 2017.

         BACKGROUND

         Plaintiff Peter J. Nowicki is a retired fire chief who served in the Moraga-Orinda Fire District in Contra Costa County from June 1983 until his retirement on January 30, 2009. Compl. at ¶¶ 15-21 (Dkt. No. 1). Defendants are the Contra Costa County Employees' Retirement Association (“CCCERA”), CCCERA Board members John B. Phillips, Scott W. Gordon, Russell V. Watts, David J. MacDonald, Jerry Telles, Debora Allen, Candace Anderson, Gabriel Rodrigues, William Pigeon, Louie A. Kroll, Jerry R. Holcombe, and Todd Smithey (“CCCERA Board”), the Moraga-Orinda Fire District (“Fire District”) and Fire District Board members Steve Anderson, John Jex, Kathleen Famulener, Brad Barber, and Craig Jorgens. Id. at ¶ 11.

         The complaint alleges that CCCERA is a retirement board within the meaning of California Constitution, Article XVI, section 17(h) and the County Employees Retirement Act of 1937, Cal. Gov't Code section 31450 et seq. Id. at ¶ 10. Section 17(a) of Article XVI of the California Constitution provides that “[t]he retirement board of a public pension or retirement system shall have sole and exclusive fiduciary responsibility over the assets of the public pension or retirement system. The retirement board shall also have sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries.” C.A. CONST. art. XVI §17(a).

         Plaintiff received a promotion from Battalion Chief to Fire Chief in July 2006. Id. at ¶ 15. Plaintiff alleges that he initially raised concerns about the lower salary and benefits offered as Fire Chief. Id. Fire District Board President Gordon Nathan and then Fire Chief Jim Johnston assured him “that an annual review would be conducted of Nowicki's salary and benefits and an appropriate adjustment would be made to his Fire Chief contract.” Id. After his promotion, plaintiff's contract with the Fire District awarded him $173, 000 in annual salary and a vacation accrual policy of 20 hours per month, and had a cap at 400 hours. Id.

         The Fire District amended plaintiff's contract on February 6, 2008, retroactive to July 2007. Id. at ¶ 16. The amended contract increased his salary to $186, 000, and added a “vacation sell-back” provision. Id. This enabled plaintiff to sell up to 200 hours (per year) of unused vacation time, and convert them into cash payments. Id. Plaintiff exercised this option, and on February 8, he sold 200 hours of unused vacation. Id. at ¶ 17. The Fire District amended his contract again on December 10, 2008, retroactive to July 2008. Id. at ¶ 18. The contract increased the vacation sell-back allotment to 260 hours, “and allowed conversion of non-cashable paid administrative leave into cashable vacation.” Id. Plaintiff sold an additional 60 hours of vacation that December, and converted the maximum 260 hours on January 5, 2009. Id. at ¶ 20.

         The complaint alleges that on January 30, 2009, plaintiff retired from the Fire District “pursuant to a defined plan administered by CCCERA, which allowed him to retire at the age of 50 with a pension benefit calculated by multiplying his highest compensation over any consecutive 12 months of employment by the product of 3% and his accrued years of service.” Id. at ¶ 21. According to the complaint, “[i]n compliance with the rules governing the CCCERA retirement plan, and consistent with the provisions of the California Constitution and the 1937 Act, calculation of Nowicki's highest 12 months of compensation included his annual salary, vacation sell-backs, a Fire Retirement Allotment, uniform allowance, and vacation and personal holiday payout upon retirement. Application of the above factors to Nowicki's 28.3 years of service resulted in a monthly pension benefit of $20, 076.00 before taxes and other withholdings. Id. at ¶ 22.

         On August 5, 2015, plaintiff received a letter from the CCCERA Board informing him that it had scheduled a hearing on September 9, 2015 to review what was described as “. . . acts of pension spiking, through members' receipt of pay items that were not earned as part of their regularly recurring employment compensation during their careers.” Id. at ¶ 24. The letter also informed plaintiff that his pension was subject to investigation and that the hearing would allow him “the opportunity to present to the Board your position and any information you believe is relevant to the calculation of your retirement allowance.” Id. The letter also stated that plaintiff “could submit written materials relevant to this issue in advance of the Board meeting” and that “[a]ny public meeting materials prepared by CCCERA for the purpose of the hearing will be provided to you in advance of the meeting.” Defendant's Request for Judicial Notice, Ex. A (Dkt. No. 38-1).[1]

         Plaintiff attended the administrative hearing and alleges he “was not given a full, fair and reasonable opportunity to present evidence and to call witnesses supporting the validity of his retirement benefit calculations.” Compl. at ¶ 25. Plaintiff alleges,

Contrary to the Board's assurances in its August 5, 2015 letter, the requirements of the 1937 Act, and the due process and taking clauses of the U.S. Constitution and the California Constitution, Nowicki was not given a full, fair and reasonable opportunity to present evidence and to call witnesses supporting the validity of his retirement benefit calculations. Nowicki was allotted an unduly restrictive amount of time in order to present his case. In addition, the CCCERA Board declined Nowicki's offer of witnesses. None of the testimony before the Board was under oath. Nor were the Board proceedings full, fair or unbiased. The claims against Nowicki were presented to the CCCERA Board by the same legal counsel who subsequently advised the CCCERA Board. Furthermore, the CCCERA Board was told during the deliberations that it need not find that Nowicki violated any law: “It does not have to be a violation. We don't have to show it to be improper. Remember that the word that's used is ‘improper'. It's not ‘illegal'. We don't have to show a violation of the law.” (Underlining added.) Furthermore, representatives of the Fire District declined to participate in the meeting, even though, as stated by counsel for the CCCERA, “But they received notice as well, since it is, you know, the benefits that they promised and that they're paying for that are at issue here today.”

Id.

         On September 11, 2015, CCCERA formally notified plaintiff that it was reducing his pension payments to $14, 667.74 per month, stating that he “had caused his ‘final average salary (compensation earnable) to be improperly increased at the time of retirement.'” Id. at ¶ 26. On September 21, 2015, plaintiff received another letter from CCCERA stating that plaintiff had received overpayments of retirement benefits in the amount of $585, 802.90, plus $143, 165.00 in interest, for a total repayment obligation of $728, 967.90. Id. at ¶ 27. The complaint alleges that CCCERA offered plaintiff “several options for repayment of the alleged overpayments, including monthly installment payments over a period of approximately 6 years to be deducted from his monthly pension benefit payments; a lump sum repayment; or a reduction of his prospective monthly pension benefit payment until said amount had been repaid in full.” Id.

         On October 13, 2015, plaintiff filed a pro se petition for a writ of mandate pursuant to California Code of Civil Procedure § 1094.5 challenging the CCCERA's administrative decision. Id. at ¶ 8. The complaint alleges “[t]hat matter has not proceeded beyond the filling of a response by CCCERA. Nowicki has filed a dismissal of that matter, without prejudice, contemporaneous with the initiation of the present action.” Id.

         In this lawsuit, plaintiff alleges three federal causes of action against CCCERA and the Fire District: (1) deprivation of property without due process of law in violation of the Fourteenth Amendment to the U.S. Constitution and 42 U.S.C. § 1983 (first cause of action); (2) denial of equal protection of the law in violation of the Fourteenth Amendment to the U.S. Constitution and 42 U.S.C. § 1983 (second cause of action); and (3) impairment of contracts in violation of Article I, Section 10 of the U.S. Constitution (sixth cause of action). The ninth cause of action for declaratory relief requests the Court to declare “that Defendants' denial of Nowicki's retirement benefits violates Nowicki's rights under the United States and California Constitutions as well as breached the contracts between Nowicki and Defendants.” Id. at ¶ 56. In addition, plaintiff alleges five claims under California law: (1) deprivation of property without due process of law in violation of Article 1, Section 7 of the California Constitution (third cause of action); (2) denial of equal protection of the law in violation of Article 1, Section 7 of the California Constitution (fourth cause of action), (3) breach of contract in violation of Cal. Code of Civ. Proc. § 1549 et seq. (fifth cause of action), (4) impairment of contracts in violation of Article 1, Section 9 of the California Constitution (seventh cause of action), and (5) breach of the duty of good faith and fair dealing (eighth cause of action).

         Both sets of defendants move to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted.

         LEGAL STANDARDS

          I. Rule 12(b)(1)

         “It is a fundamental precept that federal courts are courts of limited jurisdiction. The limits upon federal jurisdiction, whether imposed by the Constitution or by Congress, must be neither disregarded nor evaded.” Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). “A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears.” General Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 969 (9th Cir. 1981) (citations omitted).

         Federal Rule of Civil Procedure 12(b)(1) allows a party to challenge a federal court's jurisdiction over the subject matter of the complaint. As the party invoking the jurisdiction of the federal court, the plaintiff bears the burden of establishing that the court has the requisite subject matter jurisdiction to grant the relief requested. See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994) (internal citations omitted). A complaint will be dismissed if, looking at the complaint as a whole, it appears to lack federal jurisdiction either “facially” or “factually.” Thornhill Publ'g Co., Inc. v. General Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004) (“A Rule 12(b)(1) jurisdictional attack may be facial or factual.”). When the complaint is challenged for lack of subject matter jurisdiction on its face, all material allegations in the complaint will be taken as true and construed in the light most favorable to the plaintiff. NL Indus. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). In deciding a Rule 12(b)(1) motion which mounts a factual attack on jurisdiction, “no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims. Moreover, the plaintiff will have the burden of proof that jurisdiction does in fact exist.” Mortensen v. First Fed. Sav. & Loan Ass=n, 549 F.2d 884, 891 (3d Cir. 1977).

         II. Rule 12(b)(6)

         Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard requires the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require “heightened fact pleading of specifics, ” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570.

         In deciding whether the plaintiff has stated a claim upon which relief can be granted, the court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).

         If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted). Dismissal of a complaint without leave to amend is proper only if it is “absolutely clear that the deficiencies of the complaint could not be cured by amendment.” Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987) (quoting Broughton v. Cutter Labs., 622 F.2d 458, 460 (9th Cir. 1980)); see also Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir. 2012).

         DISCUSSION

         The CCCERA and Fire District defendants move to dismiss the federal claims for failure to state a claim. Defendants also contend that if the Court dismisses the federal claims, the Court should decline supplemental jurisdiction over plaintiff's state law claims. The Fire District also argues that the complaint generally lacks factual allegations against the Fire District defendants.

         I. Deprivation of Property without Due Process of Law in Violation of the Fourteenth Amendment to the U.S. Constitution and 42 U.S.C. § 1983

          Plaintiff's first cause of action alleges that defendants violated his Fourteenth Amendment right to due process by retroactively denying him the property right of his pension and retirement benefits as determined in a procedurally flawed administrative hearing. Compl. at ¶ 33. Plaintiff alleges that the Board severely limited his time to present his case, failed to make witnesses available, and that the Board improperly relied on counsel who served in a “dual role as the attorney against him and as an advisor to the Board, who in turn gave faulty legal advice.” Id.

         Defendants contend that the complaint's allegations of due process violations are conclusory and fail to state a claim. Defendants argue that the pleadings and the hearing transcript, which was submitted by plaintiff and CCCERA, [2] demonstrate that plaintiff was provided with sufficient due process. Defendants note that on August 5, 2015, the Board provided plaintiff with notice that it was evaluating whether his retirement benefits should be adjusted due to pension spiking and that it would hold a hearing on the matter on September 9, 2015; plaintiff was provided the opportunity to submit written materials in advance of the hearing; plaintiff did not request a continuance of the hearing; and plaintiff attended and spoke at the hearing for approximately four hours, and he was represented by counsel at the hearing. Defendants also emphasize that in addition to the pre-deprivation hearing, plaintiff also had the opportunity to pursue judicial review through a petition for administrative mandamus in California Superior Court.

         “In order to state a claim under the Fourteenth Amendment, the complainant must allege facts showing not only that the State has deprived him of a . . . property interest but also that the State has done so without due process of law.” Gearhart v. Thorne, 768 F.2d 1072, 1073 (9th Cir. 1985) (quoting Marrero v. City of Hialeah, 625 F.2d 499, 519 (5th Cir. 1980)) (internal quotation marks omitted). “The determination of what procedures satisfy due process [in a given situation] depends upon an analysis of the particular case in accordance with the three-part balancing test outlined in Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).” Orloff v. Cleland, 708 F.2d 372, 378-79 (9th Cir.1983) (parallel citations omitted). In Mathews, the Supreme Court stated:

[I]dentification of the specific dictates of due process generally requires consideration of three distinct factors: first, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.

Id. at 333. The particular degree or amount of process required, however, “is not a technical conception with a fixed content unrelated to time, place and circumstances.” Id. at 334.

         “It is well settled that ‘the root requirement of the Due Process Clause [is] that an individual be given an opportunity for a hearing before he is deprived of any significant property interest.'” Clement v. Airport Auth. of Washoe Cty., 69 F.3d 321, 331 (9th Cir. 1995) (quoting Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 541(1985)). “Although the pre-termination hearing need not be elaborate, ‘some kind of hearing' must be afforded the employee prior to termination. The essential requirements of this pre-termination process are notice and an opportunity to respond.” Clement, 69 F.3d at 331 (quoting Loudermill, 470 U.S. at 544-45).

         Here, there is no dispute that plaintiff has a significant property interest in his pension payments. Thus, the Court must evaluate whether plaintiff has stated a claim that he was denied due process during the pre-deprivation hearing he was provided. In conducting this analysis, the Court will consider both the complaint as well as the facts asserted in plaintiff's ...


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