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Blaser v. State Teachers' Retirement System

California Court of Appeals, Sixth District

July 10, 2019

STEVEN V. BLASER et al., Plaintiffs and Respondents,

          Monterey County Superior Court No.: 16CV000328 The Honorable Lydia M. Villareal Judge

          Attorneys for Defendants and Appellants Sheppard, Mullin, Richter & Hampton LLP State Teachers' Retirement System: Raymond C. Marshall, Robert J. Stumpf, Jr.

          Attorneys for Plaintiffs and Respondents Law Offices of Bennett, Sharpe, Bennett, Steven V. Blaser et al.: & Licalsi, Inc., Barry J. Bennett, Eric J. Licalsi, JRG Attorneys at Law, Robert E. Rosenthal, Sergio H. Parra


         California State Teachers' Retirement System (CalSTRS) is the state agency responsible for managing contributions made by employees and member school districts to the State Teachers' Retirement Fund. (See Ed. Code, § 22000 et seq.)[1] In March 2014, William Baxter and 10 other retired teachers (the Baxter petitioners) formerly employed by the Salinas Unified High School District (District) filed a petition for a peremptory writ of administrative mandamus, naming CalSTRS as respondent and the District as real party in interest. (See Baxter v. State Teachers' Retirement System (2017) 18 Cal.App.5th 340, 351 (Baxter).) The Baxter petitioners sought relief to prevent CalSTRS from continuing to reduce their monthly retirement benefit payments and to restore prior monies they claimed CalSTRS had wrongfully withheld. (Ibid.) CalSTRS made the deductions to recoup overpayments that had been made to the Baxter petitioners as a result of a years-long miscalculation by the District of their monthly retirement benefits. (Id. at p. 347.) The trial court held that the three-year statute of limitations (§ 22008, subd. (a)) barred CalSTRS from (1) recouping prior overpayments made to the Baxter petitioners by adjusting downward their future monthly benefits, and (2) reducing their future monthly benefits to reflect the correct calculation of their benefits. (Baxter, supra, at pp. 347-348.) In December 2017, a panel of this court reversed, concluding the trial court had erred in holding that CalSTRS's efforts to recoup overpayments were time-barred as to all monthly retirement payments, both past and future. (Id. at p. 349.) This court found that the continuous accrual theory applied. (Id. at p. 382.) Under this theory, “ ‘a series of wrongs or injuries may be viewed as each triggering its own limitations period, such that a suit for relief may be partially time-barred as to older events but timely as to those within the applicable limitations period. [Citation.]' [Citation.]” (Id. at pp. 378-379.)

         The present action is a successor to the suit by the Baxter petitioners. In February 2016-while the Baxter appeal was pending-respondents in this appeal, who are 31 retired District teachers (hereafter collectively Teachers), [2] filed a petition for writ of mandate and a complaint for declaratory and injunctive relief against CalSTRS and the District. Like the Baxter petitioners, Teachers challenged reductions that CalSTRS had made and continued to make to their monthly retirement benefits to recoup prior overpayments and to adjust ongoing monthly benefits to their proper amounts. The overpayments were the result of the same miscalculation the District had made to the Baxter petitioners' monthly retirement benefits.

         In July 2017-five months prior to this court's decision in Baxter-the trial court granted Teachers' petition for writ of mandate in this case, concluding that CalSTRS's claims to reduce Teachers' retirement benefits and collect overpayments were time-barred. The trial court held that CalSTRS, by no later than July 30, 2010, “was ‘aware of the possibility' ” that there were District schoolteachers other than the Baxter petitioners whose retirement benefits had been incorrectly calculated by the District, but that “CalSTRS did not take action until 2014, more than three years later.” In holding that CalSTRS was barred from recouping prior overpayments from Teachers or from reducing future payments to correct the District's prior miscalculation, the trial court concluded that the continuous accrual theory did not apply.

         CalSTRS appealed from the judgment. In its appeal, CalSTRS challenges the trial court's rejection of the continuous accrual theory. CalSTRS urges that, under Baxter, the continuous accrual theory applies, and that “CalSTRS is time-barred only as to claims relating to pension benefit payments made more than three years before CalSTRS took ‘action' by reducing each individual teacher's monthly benefit payment[].”

         We hold-following Baxter, supra, 18 Cal.App.5th 340, which in turn relied on Supreme Court precedent, including Dryden v. Board of Pension Commrs. (1936) 6 Cal.2d 575');">6 Cal.2d 575 (Dryden)-that the continuous accrual theory applies here to the periodic pension benefit payments made to Teachers. Thus, CalSTRS was time-barred from pursuing any claim against Teachers as to pension benefit overpayments made more than three years before CalSTRS commenced an action. But CalSTRS is not barred by the statute of limitations from pursuing any claim concerning periodic overpayments to Teachers and adjustments to Teachers' future monthly benefits, where the payment accrued not more than three years prior to commencement of an action. Further, the trial court held that CalSTRS commenced an “action” by reducing Teachers' monthly benefit payments beginning in 2014. But we decide-as we did in Baxter-that the reduction in benefits made by CalSTRS, under the factual and procedural context presented here, did not constitute the commencement of an “action” within the meaning of the statute of limitations. Instead, we conclude that CalSTRS constructively commenced an “action” at the time Teachers herein filed their verified petition and complaint in the superior court on February 1, 2016. Under well-established legal principles, the filing of a complaint by the plaintiff tolls or suspends the statute of limitations as to any counterclaims existing in favor of the defendant on the date of such filing. (Union Sugar Co. v. Hollister Estate Co. (1935) 3 Cal.2d 740, 746 (Union Sugar).) Therefore, CalSTRS is deemed to have commenced an “action” to toll or suspend the statute of limitations when Teachers filed suit on February 1, 2016. Accordingly, we hold that CalSTRS may assert claims to recoup overpayments for past monthly payments accruing on or after February 1, 2013, and it may adjust future monthly payments to recoup prior overpayments (on benefit payments that accrued on or after February 1, 2013) and to correct the District's prior miscalculation of monthly benefits going forward. We will reverse the judgment.


         A. Pre-Suit Background

         Teachers are retired employees of the District who had been classroom teachers.[4] Each of the Teachers is a member of CalSTRS and of its Defined Benefit Program (DB Program). A portion of Teachers' compensation was reported by the District as being deferred to Teachers' respective DB Program accounts for the purpose of their receiving postretirement benefits.

         “CalSTRS was created by the Legislature in 1913 as a retirement system for credentialed California teachers and administrators in kindergarten through community college. (See § 22000 et seq. (Teachers' Retirement Law).)” (Duarte v. California State Teachers' Retirement System (2014) 232 Cal.App.4th 370, 384 (Duarte).) “CalSTRS is the state agency responsible for managing contributions made by employees and member school districts to the State Teachers' Retirement Fund. [Citation.]” (Baxter, supra, 18 Cal.App.5th at p. 349.)

         “On September 29, 1999, the District and the Salinas Valley Federation of Teachers (SVFT) entered into a tentative collective bargaining agreement for the 1998 1999 and 1999 2000 school years. That agreement included an additional schedule for teachers who taught a sixth period, and changed the definition of a normal workday to include the extra period for all sixth period teachers. Each subsequent iteration of the collective bargaining agreement ‘contained provisions defining the sixth period teachers as a separate class of employees and the district has developed two distinct salary schedules that reflect the compensation paid to the two classes of certificated employees.' ” (Baxter, supra, 18 Cal.App.5th at p. 349.)

         The Teachers' Retirement Law was amended in 2000 to provide, effective January 1, 2001, supplemental benefits for members of the DB Program. (§ 25000; see Stats. 2000, ch. 74, § 69, p. 1261.) As a result, a Defined Benefit Supplement Program (DBS Program) was established to provide, inter alia, retirement benefits that are separate from those paid under the DB Program. After the DBS Program was established by statute, the hours that CalSTRS members worked beyond full-time work (i.e., in excess of 1, 000 hours), such as overtime or summer school work, were creditable to the DBS Program. Under the DBS Program, the member receives a lump sum or annuity based upon his or her contribution to that program.

         “Schools within the District utilized a six period schedule. [Schoolteachers] within the District typically taught five of those periods and used the additional period to prepare prospective lesson plans. Some of them, however, including [the Baxter petitioners], agreed to teach during their sixth period time for additional compensation, and to shift their preparation time to before or after the regular school day. [The Baxter petitioners] believed that this additional compensation would be credited toward their retirement plan [i.e., the DB Program, which was]... administered by CalSTRS.” (Baxter, supra, 18 Cal.App.5th at p. 349.) Likewise, Teachers here elected to work the sixth period for one or more school years, and in doing so, believed that their compensation for that work would be credited toward their respective DB Program accounts. The District's reporting to CalSTRS of the compensation earned by the Baxter petitioners and Teachers herein for purposes of calculating their respective monthly retirement benefits is at the heart of the controversy in both cases.[5]

         “From September 29, 2008, until October 1, 2008, Mayer Hoffman McCann P.C. (MHM), an accounting firm commissioned by CalSTRS, performed an audit of District records. CalSTRS received the auditor's findings on December 1, 2008. The audit findings revealed [that] the District's practice of coding [the Baxter petitioners'] sixth period earnings as creditable [to their respective DB Program accounts] was improper. CalSTRS issued a draft audit report on May 27, 2010, adopting MHM's conclusion that the District had incorrectly coded [the Baxter petitioners'] sixth period earnings, causing them to receive a larger monthly retirement benefit than that to which they were entitled.” (Baxter, supra, 18 Cal.App.5th at pp. 349-350.) The draft audit by CalSTRS involved a sampling of the DB Program accounts of 15 CalSTRS members, including the 11 Baxter petitioners. None of Teachers in this case was included in the audit sampling. Although CalSTRS provided the 15 CalSTRS members who were part of the audit sample an opportunity to respond to the draft audit's findings, it did not notify Teachers of the issuance of the draft audit or give them an opportunity to respond to its findings.

         “CalSTRS issued its final audit report on July 30, 2010, upholding the draft report's finding. The audit concluded with two corrective orders. First, CalSTRS demanded that, within 60 days, the District submit corrections to CalSTRS to reverse the improperly credited compensation. [CalSTRS advised that o]nce the District submitted corrections, CalSTRS would recalculate the relevant retired teachers' retirement allowances based on the correct final compensation and adjustment notification letters would be sent to affected teachers. Second, the District was ordered to ‘remit the total overpayments to CalSTRS for the retired members.' ” (Baxter, supra, 18 Cal.App.5th at p. 350.) In its final audit report, CalSTRS stated as follows: “Finding I - Corrective Action Needed: [¶] Salinas Union High School District must submit corrections to CalSTRS to reverse out the incorrectly reported (coded) pay rate and earnings for all [15] members identified in the Confidential Appendix and all other members who for which it was incorrectly reported an Assignment Code 57, starting with the 2003-2004 school year.” (Italics added.)

         The final audit report of July 30, 2010, was mailed by CalSTRS to the District and to the Baxter petitioners. (Baxter, supra, 18 Cal.App.5th at p. 371.) At the same time, “CalSTRS apprised each of the [Baxter petitioners] in separate letters that it had concluded from its final audit that the District had ‘incorrectly reported (coded) your sixth period teaching assignment (extra duty) earnings... as creditable compensation to the Defined Benefit (DB) Program for the... school year ending in your retirement. Under state law, these extra duty assignment payments should have been credited to the Defined Benefit Supplement (DBS) program, thus it does not count toward the calculation of your DB retirement allowance. These reporting errors caused your monthly retirement allowance to be overstated by approximately $[] from..., your retirement benefit effective date.' Each letter advised further that CalSTRS was entitled under the law to recover the overpayment by reducing future payments to each of the [Baxter petitioners] by no more than five percent, because the overpayment was due to error by the school system, but CalSTRS had requested that the District reimburse the overpayments on behalf of each of the [Baxter petitioners]. Lastly, CalSTRS advised each of the [Baxter petitioners] that if he or she disagreed with its determination, he or she was required to appeal it through an administrative hearing process within 90 days of the letter.” (Id. at p. 371, fn. omitted.)[6] CalSTRS did not give Teachers notice of or an opportunity to respond to the findings of the final audit report.

         At various times between June 2014 and February 2015, Teachers (with four exceptions) received correspondence from CalSTRS advising them that their respective monthly DB Program benefit payments would be reduced and that CalSTRS would collect monies from Teachers that they had received as overpayments at the rate of five percent per month. In that same time period, CalSTRS reduced the monthly retirement benefits of Teachers (with four exceptions).[7]

         B. The Baxter Litigation

         “[The Baxter petitioners] appealed the final audit findings on or before December 3, 2010. CalSTRS filed a statement of issues with the Office of Administrative Hearings on July 6, 2012. [After a]n administrative hearing, ... [o]n July 18, 2013, the administrative law judge (“ALJ”) issued a proposed decision... in favor of CalSTRS.... [After rejecting the ALJ's proposed decision, o]n January 23, 2014, the [Appeals] Committee [of CalSTRS] issued a decision in favor of CalSTRS.” (Baxter, supra, 18 Cal.App.5th at p. 350, fn. omitted.)

         The Baxter petitioners on March 24, 2014, filed a petition for a peremptory writ of administrative mandamus under Code of Civil Procedure section 1094.5. (Baxter, supra, 18 Cal.App.5th at p. 351.) In its intended decision filed on May 1, 2015, “[t]he trial court concluded that CalSTRS's claims against [the Baxter petitioners] to recover monies paid erroneously due to miscalculation of retirement benefits were time-barred, and CalSTRS was further barred from reducing [the Baxter petitioners'] future monthly benefits.” (Ibid.) Judgment was entered in favor of the Baxter petitioners on June 3, 2015. (Ibid.)

         In the appeal by CalSTRS from the judgment entered in Baxter, this court concluded that the trial court was correct in finding that some of CalSTRS's claims were barred under the applicable three-year statute of limitations, but that the trial court had erred in concluding that CalSTRS was entirely precluded from pursuing any action against the Baxter petitioners for overpayments or from adjusting future monthly payments. (Baxter, supra, 18 Cal.App.5th at p. 348.) Specifically, this court addressed four principal issues: (1) the meaning of the language of section 22008 concerning the commencement (or accrual) of the statute of limitations; (2) the date the statute of limitations commenced with respect to CalSTRS's claim against the Baxter petitioners concerning the overpayment of monthly pension benefits; (3) the date CalSTRS commenced an “action” against the Baxter petitioners for purposes of determining whether its claims were, as the trial court found, time-barred; and (4) even if CalSTRS had not commenced an “action” within three years after the statute of limitations accrued, was CalSTRS nonetheless entitled, under the continuous accrual theory, to pursue a claim for recovery of overpayments as to more recent periodic installments and to reduce payments to address the miscalculation issue.

         First, this court in Baxter interpreted the language of section 22008, subdivision (c) (§ 22008(c)), which provides that the limitations period “ ‘shall commence with the discovery of the incorrect payment.' ”[8] The question to be decided was whether, for purposes of determining when the limitations period commenced (or accrued), “ ‘discovery' ” under section 22008(c) means (as the trial court held) the date the party obtains actual knowledge of the incorrect payment, or alternatively, the date the party has actual or inquiry notice thereof. (Baxter, supra, 18 Cal.App.5th at p. 355.) We held that a party bringing an action to adjust an incorrect payment must do so within three years after that party discovered, or in the exercise of reasonable diligence, should have discovered, the existence of a pension benefit payment that was incorrect due to a lack of information or inaccurate information. (Id. at p. 363; see also Yuba City Unified School Dist. v. California State Teachers' Retirement System (2017) 18 Cal.App.5th 648, 655 659 [holding that under § 22008(c), the limitations period accrues when the party discovers, or in the exercise of reasonable diligence should have discovered, the incorrect payment].)

         Second, we held in Baxter that, as applied to the case, the limitations period as to CalSTRS's claim regarding overpayments made to the Baxter petitioners accrued on August 18, 2005. (Baxter, supra, 18 Cal.App.5th at p. 368.) This was the date that District employee Cindy Fellows sent a memorandum (hereafter the Fellows memorandum) to the Monterey County Office of Education (MCOE) advising that there were questions concerning how the District reported for purposes of pension calculations the earnings for schoolteachers who worked a sixth period class, and that there were 40 to 50 schoolteachers each year who requested to work a sixth period. (Id. at pp. 363-364.) The trial court found that the MCOE was “ ‘[a]t minimum,' the ostensible agent of CalSTRS, ” and we concluded that this finding was supported by substantial evidence. (Id. at p. 366.) Holding that CalSTRS was thus chargeable with knowledge of the contents of the Fellows memorandum (id. at p. 367), we concluded that “CalSTRS was placed on inquiry notice as of [August 18, 2005, ] through the Fellows memorandum, thus triggering the three-year statute of limitations under section 22008(c).” (Id. at p. 368, original italics, fn. omitted.)

         Third, this court in Baxter addressed section 22008, subdivision (a) (§ 22008(a)), which requires that the “action... be commenced” within three years of the accrual of the claim.[9] This court concluded in Baxter that CalSTRS commenced the “ ‘action' ” on July 6, 2012, when CalSTRS filed a statement of issues in the administrative proceeding. (Baxter, supra, 18 Cal.App.5th at p. 369.) We reasoned that, while “[a]pplying the Code of Civil Procedure by analogy... to the statute of limitations specified in the Education Code is a challenging task” (id. at pp. 371), “the filing of a statement of issues to initiate administrative proceedings is the closest analogue to the filing of a civil complaint.” (Id. at pp. 374-375.)

         Fourth, Baxter addressed the trial court's finding that CalSTRS's efforts to correct the miscalculation of the Baxter petitioners' retirement benefits was entirely time-barred. We considered CalSTRS's argument “that, even if the trial court correctly found that CalSTRS did not commence an action within three years under section 22008, the court erred in concluding that CalSTRS was barred from pursuing any relief as to any monthly payments, past or prospective” under the continuous accrual theory. (Baxter, supra, 18 Cal.App.5th at p. 375.) Relying on Dryden, supra, 6 Cal.2d at pages 580 to 581-where the Supreme Court held that “ ‘ “[t]he right to [monthly] pension payments is a continuing right”' ” and any claim to such benefits accrues at the time the periodic payment becomes due (Baxter, supra, at p. 380, original italics)-we held that the continuous accrual theory applied, and that CalSTRS's claim was not entirely barred. (Id. at pp. 379-382.) We concluded that CalSTRS was time-barred as to claims against the Baxter petitioners for pension benefit overpayments made more than three years prior to July 6, 2012 (i.e., the date it commenced the “action”), but it was not barred by the statute of limitations as to “any such action for past or future payments to [the Baxter petitioners] accruing on or after July 6, 2009.” (Id. at p. 382.)

         On December 12, 2017, this court reversed the judgment. Because the Baxter petitioners had, in addition to the statute of limitations, asserted that CalSTRS was barred from proceeding based upon principles of equitable estoppel and laches, and the trial court had not addressed those issues, we remanded the case to the trial court for further proceedings to address those defenses. (Baxter, supra, 18 Cal.App.5th at p. 375.)

         C. The Bla ...

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