Friday, February 23, 2018

Mastagni Holstedt Appeals Alameda County Deputy Sheriff’s Association PEPRA Decision to Supreme Court

David E. Mastagni and Isaac S. Stevens petitioned the California Supreme Court to review the First District Court of Appeals’ decision in Alameda County Deputy Sheriff’s Associationv. Alameda County Employees’ Retirement Association (“ACDSA”). The petition asks the Court to reverse the appellate court’s holding that detrimental changes to employees’ pension benefits need not be offset by comparable new advantages to be constitutional.

This case arose from the enactment of the Public Employees’ Pension Reform Act (“PEPRA”). On behalf of the ACDSA, we sued the Alameda County Employees Retirement Association (“ACERA”) in December 2012, after it announced plans to begin excluding forms of leave cash out and other pay items from ACDSA members’ pension calculations, supposedly to comply with PEPRA’s changes to the definition of “compensation earnable.” “Compensation earnable” is the pay used to calculate employees’ pension benefits.  The lawsuit alleged that, by excluding these pay items from members’ pension benefits, PEPRA infringed on members’ vested pension rights. The case was eventually consolidated with cases from Contra Costa County and Merced County asserting similar claims.

The trial court largely ruled against employees and unions in the case. According to the court, there was no vested right to pension that included terminal pay, and there was no basis for using the doctrine of promissory estoppel to require ACERA to continue including terminal pay in retirees’ pension benefits. We appealed.

While the case was on appeal, the First District issued a decision in a case raising issues very similar to ours, MarinAssociation of Public Employees v. Marin County Employees’ Retirement Association (“MAPE.”) The MAPE case also challenged the legality of excluding terminal pay from pension benefit calculations pursuant to PEPRA. In MAPE, the First District appellate court ruled that a detrimental change to vested pension rights did not need to be offset by a new advantage to survive scrutiny, so long as the remaining pension benefit was reasonable. Shortly thereafter, the First District issued a decision in Cal Fire v. California PublicEmployees Retirement System (“CalFire”), affirming the MAPE court’s decision that comparable new advantages were required when pension benefits were reduced.

The MAPE represented a radical departure from decades of case law protecting pension benefits from being reduced. In Allen v. City of Long Beach (1955) 45 Cal.2d 128, the Court ruled that the Constitution required any changes to vested benefits be material to the theory of a pension system, and any detriment resulting from such a change should be offset by a comparable new advantage. This principle is often referred to as the California Rule. Over the years, the courts repeatedly affirmed the validity of this rule, and required detrimental changes be offset by new advantages to survive constitutional scrutiny. By turning the requirement for a new advantage into a mere suggestion, the MAPE court made public employees’ pension benefits vulnerable to reductions in the future. Indeed, Governor Brown himself acknowledged that, when the next recession comes around he will “have the option of considering pension cutbacks for the first time in a long time.”[1]

The California Supreme Court granted review in the Cal Fire and MAPE cases while the ACSDA case was still pending in the appellate court. In granting review in MAPE, the Court ordered further proceedings in that case deferred until our case was decided.

The appellate court in ACDSA ruled on our appeal in early January.  The court issued a lengthy ruling, finding the trial court failed to include a vested rights analysis, and its analysis of PEPRA’s impact on the pensions of legacy members was incorrect.  In the ruling, the court cited the MAPE decision approvingly, ruling that PEPRA’s changes to employees’ pension benefits did not need to be offset by corresponding new advantages to be constitutional.  Beyond merely agreeing with the MAPE decision, the court in ACDSA went so far as to describe MAPE’s evisceration of California vested rights case law as “not controversial.”

While the court determined that legacy PEPRA members could be entitled to have the excluded pay items included in their pension calculations under a theory of promissory estoppel, it left the door open for the State to continue reducing employees’ pension benefits in this future. We appealed the decision to ensure the California Supreme Court had an opportunity to overturn the First District’s efforts to erode public employees’ pension rights.

The petition for review we filed this week asks the Supreme Court to review the appellate court’s ruling on the comparable new advantage issue, while leaving the estoppel ruling intact. As discussed in our petition, review is necessary to reverse the First District appellate court’s efforts to overturn decades of vested rights case law and protect public employees’ pensions in the future.

The State of California has also petitioned the Supreme Court for review, seeking to overturn the appellate court’s ruling on whether retirement associations had the authority to agree to include the pay items at issue in employees’ pension benefits to settle disputes over benefit calculations after the Court’s landmark ruling in Ventura. The State’s appeal thus challenges the appellate court’s ruling on promissory estoppel, while leaving its destruction of the California Rule intact.

By appealing the appellate court’s decision, the appeal ensured that the ACDSA has a seat at the table when the Supreme Court considers the First District’s ruling, and an opportunity to defend our clients’ rights to receive the pensions they spent decades working for. The Court will address this issue when it considers the MAPE and Cal Fire cases, and an adverse ruling on those appeals could supersede the appellate court’s decision in the ACDSA case. By appealing, the ACDSA ensured its objection to the First District’s attack on the California Rule would be heard. For similar reasons, we filed an amicus brief on behalf of the ACSDA and public safety associations across California in the Cal Fire case, asking the Court to affirm the continued existence of the California Rule. Be sure to check the blog to keep up to date on what happens.