1 DAVID P. MASTAGNI, ESQ. (SBN 57721) DAVID E. MASTAGNI, ESQ. (SBN 204244)

2 ISAAC S. STEVENS, ESQ. (SBN 251245) MASTAGNI, HOLSTEDT, AMICK,,

3 MILLER, & JOHNSEN A Professional Corporation

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1912 "I" Street Sacramento, California 95811-3151

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Telephone: (916) 446-4692 Facsimile: (916) 447-4614

6 LEWIS N. LEVY, ESQ. (SBN 105975)

7 LEVY, FORD & WALLACH 3619 Motor Avenue

8 Los Angeles, CA 90034 Telephone: (213) 380-3140

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Facsimile: (213) 480-3284

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Attorneys for Petitioner

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13 LOS ANGELES CITY ATTORNEYS

14 ASSOCIATION, a California non-profit corporation in good standing, ROES 1 through

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400.

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Petitioner,

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V.

18 CITY OF LOS ANGELES, DOES 1 through 20,

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Respondent,

20 THE BOARD OF ADMINISTRATION OF

21 THE LOS ANGELES CITY EMPLOYEES RETIREMENT SYSTEM

22 Real Party in Interest.

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24 ENGINEERS & ARCHITECTS ASSOCIATION

25 Intervenor. )

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AND RELATED PARTIES. ) )

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Case No.: BS135294 and Related Case No. BC 489113

PETITIONER, LOS ANGELES CITY ATTORNEYS ASSOCIATION’S OPENING BRIEF IN SUPPORT OF PETITION FOR WRIT OF MANDATE; EQUITABLE ACTION FOR DECLARATORY RELIEF; AND PROMISSORY ESTOPPEL

Action Filed: March 8, 2012 Hearing Date: April 25, 2013 Time: 1:30 p.m. Dept.: 82 Judge: Honorable Luis A. Lavin

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

PETITIONER’S OPENING BRIEF IN AS I A( iiosilrm. AN iv SUPPORT OF WRIT OF MANDATE LLER & .IOl -I\SIll- ’ROFFSSJ( \ALI ()RPORA110’

’1iFF \\i (4JF1}F\I

LA CAA v. City of Los Angeles Case No. BS 135294

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TABLE OF CONTENTS

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I. STATEMENT OF LAW .....................................................-1-

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II. STATEMENT OF FACTS ................................................... -1-

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A. The City Has Promised Near No-Cost Retiree Health Benefits For 40 Years... -1-

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B. The Maximum Subsidy Has Been Indexed to Keep Pace With Medical Costs.. -2-

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C. City Attempts to Force Concessions from LACAA during a Closed Labor Contract

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D. The City Impaired LACAA Members Right to the Maximum Subsidy .......-4-

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E. The City Evidenced Its Intention to Index the Maximum Subsidy to the Cost of

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Retiree Medical Insurance .......................................... -5-

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F. The City Has Pre-funded Future Increases in the Maximum Subsidy Since 1987 -6-

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G. LACERS’ Actuarial Assumptions Include Increases to the Maximum Subsidy . -6-

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III. DISCUSSION ............................................................ . 7-

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A. The City Impaired a Contract Obligation to LACAA’s Members ............. 8-

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1. Eligibility for the Maximum Subsidy Is a Vested Contractual Right ... -8-

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2. The Right to the Maximum Subsidy Vested Upon Employment ...... -9-

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3. The Freeze Ordinance Impairs Vested Rights .................... -11-

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B. The Impairment is Substantial ...................................... -12-

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C. The Impairment is Not Reasonable or Necessary for a Legitimate Public Purposd 2-

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1. The City Did Not Adopt the Freeze Ordinance for a Legitimate Public

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Purpose.................................................. -13-

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2. The Impairment is Not Reasonable or Necessary ................. -13-

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D. LACAA Members Justifiably Relied on City Promises to Provide a Maximum

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Subsidy......................................................... -15-

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IV. CONCLUSION .......................................................... -15-

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\i AG. IR UMI

,RO!rIGG( )

ISMH

PETITIONER’S OPENING BRIEF IN �uc. SUPPORT OF WRIT OF MANDATE

LA CAA v. City of Los Angeles 1 Case No. BS 135294

TABLE OF AUTHORITIES

STATE STATUTES

Code of Civil Procedure section 1085 .............................................-1-

STATE CASES

Ass ’n. of Blue Collar Workers v. Wills (1986) 187 Cal.App.3d 780 ...................... 10-

Allen v. City of Long Beach (1955)45 Cal.2d 128 .................................. -10-

Bd. ofAdministration v. Wilson (1997) 52 Cal.App.4th 1109 .......................... -12-

Bellus v. City of Eureka (1968) 69 Cal.2d 336 ..................................... -10-

Betts v. Board ofAdministration (1978) 21 Cal.3d 859 ...................... -1-, -10-, -11-

California Teachers Assn. v Cory (1984) 155 Cal.App.3d 494 ........................ -13-

Carman v, Alvord (1982) 31 Cal.3d 318 .......................................... -10-

County of Orange v. Ass ’n of Orange County Deputy Sheriffs (2011)192 Cal.App.4th 21 ... -10-

Hunter v. Sparling(1948) 87 Cal.App.2d 711 ...................................... -15-

Intl. Brotherhood v. City qfRedding (2012) 210 Cal.App.4th 1114 ..................... -10-

Kern v. City ofLong Beach, 29 Cal.2d 848 .........................................-1-

Legislature v. Eu (1991) 54 Cal.3d 492 ........................................... -10-

Miller v. State of California (1977) 18 Cal.3d 808 .................................. -10-

Olson v. Cory (1980) 27 Cal.3d 532 ............................................. -14-

Pasadena Police Officers Ass ’n. v. City of Pasadena (1983) 147 Cal.App.3d 695 ......... -10-

Requa v. The Regents of the University of California (Dec. 31, 2012) 2012 WL 6962278 . -8-, -9-

Retired Employees Association of Orange County, Inc. v. County of Orange (2011)

52Cal,4th1171 .....................................................

Thorning v. Hollister School District (1992) 11 Cal.App.4th 1598 ......................-8-

United Firefighters of Los Angeles City (UFLAC) v, City of Los Angeles (1989)

2lO Cal. App.3d1095 ..............................................-10-,-11-

Valdes v. Cory (1983) 139 Cal. App.3d 773 .................................... 12-, -13-

PETITIONER’S OPENING BRIEF IN

LA CAA v. City of Los Angeles

110f S FDIR SUPPORT OF WRIT OF MANDATE

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Case No. BS 135294 1A ER LVIH’Isl PR) 5() L ’NWORA 1 , 10

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I FEDERAL CASES

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Allied Structural Steel Co. v. Spannaus (1978) 438 U.S. 234 .......................... -12-

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US. Trust Co. v. New Jersey (1977) 431 U.S. 1 .................................... -13-

4 University of Hawaii Professional Assembly v. Cayetano (9th Cir. 1999) 183 F.3d 1096 ..... . 7-

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6 OTHER AUTHORITIES

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California Constitution (Art. I, § 9) ................................................ 1-

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Restatement of Contracts, § 901 (1) .......................................... ....-15-

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U.S. Constitution (Art. 1, 5S 10, ci. 1) ..............................................-1-

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PETITIONER’S OPENING BRIEF IN LA CAA v. City of Los Angeles

\J s ’ SUPPORT OF WRIT OF MANDATE iii Case No. BS 135294 [ 01

MIJUSSION0 010 10R \ 0

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\\l 0 (JO

1

Petitioner Los Angeles City Attorneys’ Association ("LACAA") seeks a traditional writ of

2 mandamus compelling Respondent City of Los Angeles ("City") to restore LACAA’s members’

3 vested retirement benefits. These benefits include a retiree maximum medical plan premium subsidy

4 (the "Maximum Subsidy") administered by the Los Angeles City Employees’ Retirement System

5 ("LACERS"). Until 20 11, a retiree with at least 25 years of service with the City received the

6 Maximum Subsidy, which is regularly adjusted by the LACERS Board of Administration ("Board")

7 to provide two party coverage at close to no cost In 2011, the City adopted Ordinance No. 181746

8 (the "Freeze Ordinance"), replacing the Maximum Subsidy for LACAA members with a subsidy

9 capped at $1,190.00 per month. The Freeze Ordinance unconstitutionally impairs LACAA

10 members’ right to continue earning the Maximum Subsidy. LACAA seeks a writ commanding the

11 . City to provide LACAA’s members the retiree medical subsidy, including the benefit of all increases

12 in the Maximum Subsidy made since the Freeze Ordinance was adopted and all future increases to

13 the Maximum Subsidy.

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I. STATEMENT OF LAW

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Pursuant to Code of Civil Procedure section 1085, a writ of mandate is an appropriate remedy

16 to halt official action that unconstitutionally impairs the vested retirement rights of public employees.

17 (See, e.g., Betts v. Board ofAdministration ( "Betts ")(1978) 21 Cal.3d 859.)

18

The U. S. Constitution (Art. I, § 10, ci. 1) and the California Constitution (Art. I, § 9), prohibit

19 the government from passing "a law impairing the obligation of contracts." A pension benefit, once

20 vested, cannot be destroyed without impairing a contractual obligation. (Kern v. City ofLong Beach,

21 29 Cal.2d 848, 853.) California’s Supreme Court recently held a vested right to health benefits for

22 retired county employees can be implied from the language of legislative enactments or the

23 circumstances surrounding their enactment. (Retired Employees Association of Orange County, Inc.

24 ("EEOC") v. County of Orange (2011)52 Cal.4th 1171.)

25

II. STATEMENT OF FACTS

26 A. The City Has Promised Near No-Cost Retiree Health Benefits For 40 Years

27

LACERS has long provided City employees post employment benefits including a defined

28 pension and a health coverage subsidy. Pursuant to City Charter section 1162(a), employee

AS1 \GN! HOL JLLER & JOH\S P 5 0 FES S SiN AL 2 STREF

\CR 0IENT( (7

PETITIONER’S OPENING BRIEF IN SOIL SUPPORT OF WRIT OF MANDATE

)I(AI 10)1

NI S SSI

LA CAA v. Cm; of Los Angeles Case No. BS 135294

contribution rates for LACERS’ retirement benefits must be established and fixed by ordinance.

(LACAAO 194.) Pursuant to Ordinance Number 157226, all LACERS members hired on or after

January 1, 1983 were required to pay a flat employee contribution rate of six percent (6%) of their

pre-tax income. LACAA members’ current contribution rate is seven percent (7%), regardless of

the date of hire. Neither the Charter nor the LACERS plan contain any reservation of rights to

eliminate the Maximum Subsidy or alter employee contribution rates.

On or around September 4, 1973, the City Council unanimously adopted Ordinance Number

145067 ("Enabling Ordinance") to establish a retiree health insurance program within the LACERS

plan. (LACAA1 852-59.) Prior to adoption of the Enabling Ordinance, the City Attorney publicly

advised the City Council that, "once the retirement benefit is enacted by your Honorable Body, it

cannot later be repealed save and except that additional benefits commensurate in value could be

provided in its stead." (LACAAI 862-64.) Section 4.1100 of the Enabling Ordinance articulates the

"Purpose of the Program" as follows:

It is the purpose of this Chapter to provide a health insurance program whereby former employees who are retired pursuant to the provisions of Article XXXIV of the Charter of the City of Los Angeles and their eligible dependents will be provided with health insurance protection and a subsidy to apply to health insurance premiums as hereinafter set forth.

Further, Section 4.1102 of the Enabling Ordinance states:

The health insurance premium subsidy and administrative costs will be provided solely by the City Employee’s Retirement Fund.... in order to lessen or defray part or all ofthe cost of such health insurance to such eligible retired employees as hereinafter defined. (emphasis added)

Section 4.1103, subsection (d), of the Enabling Ordinance goes on to provide:

Upon the effective date of this ordinance, the maximum monthly subsidy shall be the amount provided by the Council for active employees, provided, however, that the Board, in its discretion, may by resolution increase or decrease the maximum monthly amount of the health insurance subsidy to reflect changes in the subsidy provided by the City for active employees, or to offset any increases or decreases in the level of benefits or the cost thereof, as a result of changes in existing benefits or addition of newly created benefits by federal or state funded programs.

B. The Maximum Subsidy Has Been Indexed to Keep Pace With Medical Costs. Since 1973, the LACERS Plan has employed a methodology for increasing the

Maximum Subsidy to advance the City’s stated goal of the retiree health program to lessen

PETITIONER’S OPENING BRIEF IN

LA CAA v. City of Los Angeles

sTAc’L HO1.S SUPPORT OF WRIT OF MANDATE

- Case No. BS 135294

LLER k jors PRHSSIO’AL IS1HMliI

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or defray part or all qfthe cost of LACERS -sponsored health coverage.(LACAAOO28 (Aspen

Depo., 28:15-21.) In 1990, the City adopted Ordinance No. 165622 which, delegated

authority to the LACERS Board to adjust the Maximum Subsidy. (LACAA1865-75.)

The Maximum Subsidy was historically adjusted to remain commensurate with

changes in health benefits for active employees. (See, e.g., Enabling Ordinance, § 4.1103(d))

This methodology was eventually discontinued out of concern that retiree health costs would

exceed active employee costs, rendering the active employee subsidy insufficient to provide

subsidized retiree health coverage. In a July 3, 1997 report the City’s Administrative Officer

("CAO") recommended changing the methodology for setting the Maximum Subsidy.

(LACAA0631-37.) In that report, the CAO acknowledged that linking the active and retiree

health subsidy failed to adequately serve "The City’s goal ... to provide an option for adequate

health coverage to both its active employees and retirees at little or no cost" and that it "no

longer ensures a sufficient level of subsidy to meet the City’s goal for retirees." (Id.)

In September of 1997, the City adopted Ordinance No. 171743 (the "Kaiser

Ordinance"), de-linking from the active employee subsidy, and substantially indexing the

Maximum Subsidy to changes in the Kaiser, two party non-Medicare plan rates.

(LACAAI876-1879.) The Kaiser Ordinance states at Section 4.1103(d):

Beginning January 1, 1999, the maximum amount of the subsidy may not exceed the maximum monthly subsidy previously approved by the Board of Administration by resolution plus or minus the change (increase or decrease) in the City-sponsored two-party, non Medicare Kaiser Plan rate for retirees.

Since then, the Maximum Subsidy has been indexed to the Kaiser rates. In December 2001,

the City adopted Ordinance No. 174365 (the "Delegation Ordinance"), which gave the LACERS

Board discretion to unilaterally increase the Maximum Subsidy, so long as the increase does not

exceed increases in the Kaiser two-party non-Medicare Part A and Part B rate and the actuarial

medical trend rate for a specified period. (LACAA 0428-38.)

The Delegation Ordinance grants the LACERS Board the unfettered authority to increase the

maximum medical subsidy within the parameters of Section 4.1103.1 (a)( 1) and (2). (LACAA 1999.)

Only increases in excess of the delegation required City Council ratification. The Delegation

Ordinance empowered the LACERS Board to ensure the Maximum Subsidy kept pace with Kaiser,

PETITIONER’S OPENING BRIEF IN LAcL4 v. City of Los Angeles

[IC AMICK SUPPORT OF WRIT OF MANDATE -3- Case No. BS 135294

C>RJ’URA I IU’

which the Board effectuated by regularly approving increases as follows (LACAA1698-1728):

Date Resolution No. Maximum Subsidy

July 23,2002 03004 $872

August 12, 2003 04013 8883

August 9, 2005 00022 $928

September 12, 2006 060912-A $983

August 28, 2007 070828-B $1,022

September 9, 2008 080909-A $1,120

September 8, 2009 090908-B $1,123

September l4,2010 100914-A $1190

August 28, 2012 120828-A $1367

C. City Attempts to Force Concessions from LACAA during a Closed Labor Contract

Since May 2009, the City has declared a "fiscal emergency." In October 2009, the Coalition

of City Unions ("COCU"), including LACAA, agreed to several economic concessions by amending

labor agreements ("MOUs") negotiated in 2007. COCU agreed all employees hired before 1983

would contribute 6%of their pre-tax income to LACERS. (See LACAA 193 9-43 (Ordinance No.

181734.)) COCU also agreed to an additional one percent (1%) contribution to LACERS to mitigate

the cost of an early retirement benefit for certain eligible employees. As a result, LACAA members

contribute 7% towards retirement benefits. (LACAA1 822(MOU 29, Amen. No. 1.))

In April 2011, the City announced its intention to "freeze" retiree medical benefits for current

employees unless further concessions were given. On or about April 7, 2011, the CAO issued a report

admitting that the "current retiree healthcare subsidy" is a vested benefit but claiming future increases

were not vested. (LACAA 1932.) LACAA members declined to contribute an additional 4%.

D. The City Impaired LACAA Members Right to the Maximum Subsidy

On June 3, 2011, the City adopted the Freeze Ordinance, which eliminated LACAA

members’ right to receive the Maximum Subsidy for LACAA members who had not retired by June

30, 2011. Through Ordinance No.181734 (the "Exempting Ordinance"), the City exempted certain

employees who agreed to increased LACERS contributions from the "freeze".(LACAA 1939-43.) The

City limited employees who had not retired before July 1, 2011 to an inferior benefit permanently

1101 [LU I L 101l\S l’ROFF ,cl 1\ \l

1, FT

PETITIONER’S OPENING BRIEF IN SUPPORT OF WRIT OF MANDATE

AA Ill

LA CAA v. Cliv of Los Angeles Case No BS 135294

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1 capped at $1190.00, unless their bargaining unit agreed to a 4% increase in contributions to LACERS.

2 (LACAA0039-40 (Aspen Depo., pp.: 39:24-40:4.))

3

Ordinance 181734 established Administrative Code Section 4.1103.4, explicitly

4 acknowledging a "vested right" to future Maximum Subsidy increases "at an amount not less than

5 the dollar increase in the Kaiser two-party non-Medicare Part A and Part B premium" for certain

6 employees whose unions agreed to increase their LACERS contributions to 11%. The Ordinance does

7 not provide any additional benefit in consideration for the required additional 4% contribution.

8

LACERS’ Board has implemented the Freeze Ordinance. On August 28, 2012, the Board

9 approved Resolution 120828-A, increasing the Maximum Subsidy for 2013 from $1190 to $1367.

10 The Freeze Ordinance impaired LACAA members’ pension rights by rendering them ineligible for

11 the adjusted Maximum Subsidy. Employees not contributing an additional 4% to LACERS are

12 restricted to a $1190 subsidy.

13

E. The City Evidenced Its Intention to Index the Maximum Subsidy to the Cost of Retiree Medical Insurance

14

Prior to the adoption of the Freeze Ordinance, the City’s authorized representatives

15 consistently represented to its employees and the public its intention to provide retirees a Maximum

16 Subsidy to purchase two party HMO coverage at low or no cost. (LACAA0299-0305 (Payne Depo.,

17

19:18-25:8.))

18

In a November 17, 2000 letter, LACERS’ General Manager admitted LACERS’ historical

19 practice has been to provide a Maximum Subsidy sufficient to cover the premium for a two-party,

20 non-Medicare Kaiser plan. (LACAA1893-97.) In a November 27, 2000 letter, the Officer of

21 Administrative & Research Services endorsed a proposal to continue linking future increases in the

22 retiree medical subsidy to Kaiser’s two party non-Medicare rate (LACAA1900-01.)

23

Ina January 9, 2001 memorandum, the LACERS Benefits Committee acknowledged that the

24 amount of the Maximum Subsidy was and should continue to be tied to any increases in the Kaiser

25 non-Medicare two-party rate. (LACAA19O2-06.) In a September 19, 2001 letter to the Mayor,

26 LACERS’ General Manager acknowledged the historic practice of providing a Maximum Subsidy

27 sufficient to cover the two-party premium for a non-Medicare HMO plan and a single-party non-

28 Medicare PPO plan. (LACAA04 15-417.) The CAO ’5 July 3, 1997 report admitted "[T]he City’s goal

PETITIONER’S OPENING BRIEF IN LA CAA 1. Cliv of Los Angeles

\c]\cNI I IOLS Ff0 itci. SUPPORT OF WRIT OF MANDATE -5- Case No. BS 135294 CLEF & JOHNS PJI)USSJ()t’AL OJt!’OR’\

F F (C OJEN

1 has been to provide an option for adequate health coverage to both its active employees and retirees

7 at little or no cost." (LACAA1 631-1637.) The City has admitted that if a retiree is currently receiving

3 100% of the Maximum Subsidy, then 100 percent of that [non-Medicare two-party Kaiser plan]

4 premium is subsidized." (LACAA0361-362 (Payne Depo at 81:18-82:7.))

5 F. The City Has Pre-funded Future Increases in the Maximum Subsidy Since 1987

6

Retiree medical benefits were funded by the City on a "pay-as-you-go" basis until 1987 when

7 the City began pre-funding retiree medical benefits. (LACAA 1630 (Hsi Depo., 26:20-27:5) LACAA

8 1630(Peters Dec1.,J 17-18.)) By pre-funding the Maximum Subsidy, future benefits are paid largely

9 by the investment income. (LACAA0465 (Hsi Depo., 28:1-8.)) The City has historically paid the full

10 actuarially determined Annual Required Contribution ("ARC") to pre-fund retiree healthcare benefits.

11 (LACAA0467 (Hsi Depo., 29:16-18); LACAAI 630 (Peters Decl.,J 17-18.) The Cityis notrequired

12 to pay the full ARC.(LACAA0476 (Hsi Depo., 38:13-39:7.)) The ARC includes the "pay as you go"

13 cost of the subsidy plus additional pre-funding payments. (LACAA047 1 (Hsi Depo., 33:15-20.))

14 G. LACERS’ Actuarial Assumptions Include Increases to the Maximum Subsidy

15

Charter Section 1168(b) mandates the City Council to obtain written actuarial determinations

16 regarding the cost of any retirement benefit enhancements. Thus, the City directed LACERS’ actuary,

17 Segal and Company ("Segal"), to analyze the cost of purportedly vesting future increases in the

18 maximum health subsidy. In a letter dated April 28, 2011, Segal acknowledged that the ordinance

19 purportedly vesting future subsidy increases created no additional liability, because future increases

20 were always including in its assumptions. (LACAA0673-74.) Segal stated "we have always

21 proceeded under the presumption that the plan benefit would continue to be paid indefinitely for the

22 current members ... [and] ... that the future medical subsidy amount would continue to increase with

23 future medical inflation assumptions." (Id.) Assumed increases to the Maximum Subsidy were

24 included in the amounts pre-funded on behalf of current LACAA members. (LACAA0467-68, 0512

25 (Hsi Depo., 29:16-18, 30:8-13, 74:1-75:10); LACAA1630 (Peters Decl., 17.))

26

Thus, the future subsidy increases have already largely been paid for by prior contributions

27 to LACERS on behalf of the employees. The City admits that its retiree medical plan is properly

28 funded and "with or without the funding freeze, if we -- the City funds our health benefits according

PETITIONER’S OPENING BRIEF IN

LA CAA v. Cliv of Los Angeles

;ST-\c,Ni HOL oc, SUPPORT OF WRIT OF MATE

Case No. BS 135294 LLER & JOH\S ’HO LSONAL

’(H.\] (1) ST11FIFIf

to the current funding policy, we are fine." (LACAA0513-14 (Hsi Depo., 75:22-76:9.)) The City is

2 nationally recognized as a "gold Standard" for pre-funding health benefits. (LACAA0482 (Hsi Depo.,

3 44:7-11.)) In fact, the City admits its health benefit plan is currently 71-72% pre-funded.

4 (LACAA0475 (Hsi Depo., 37:20-22.))

5

The City has acknowledged employees’ right to the Maximum Subsidy through its past

6 practice of limiting benefit reductions to new hires. When the City changed part time employees’

7 eligibility requirements for the Maximum Subsidy in 1990, it changed them only for future

8 employees. (LACAA03 82-93.) Further, the City obtained legal advice that was shared with the

9 LACERS Board before enacting the "Freeze Ordinance," warning that a nearly identical "freeze"

10 applied to police and fire employees would constitute an unconstitutional impairment. (LACAA0325-

II 27 (Payne Depo., 45:12-47:12.)) That legal opinion concluded "The retiree medical plan subsidy

12 constitutes a vested right for current and retired sworn police and fire personnel and their qualified

13 survivors. They also have a vested right to future increases in premium subsidies." (LACAA0394-

14 0409.)

15

III. DISCUSSION

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The City has a contractual obligation to provide the Maximum Subsidy to all LACAA

17 members retiring after working at least 25 years for the City. The Contracts Clauses of the U.S.

18 and California Constitutions prohibit the City from enacting legislation that impairs contracts. In

19 determining whether a law violates the Contracts Clause, the Court must consider: (1) whether the

20 law impairs a contractual obligation; (2) whether the impairment is substantial; and (3) whether

21 the impairment is reasonable and necessary to serve a legitimate public purpose. (University of

22 Hawai’i Professional Assembly v. Cayetano (9th Cir. 1999) 183 F.3d 1096, 1104-1107.)

23

By adopting the Freeze Ordinance and capping LACAA members’ health subsidy at a flat

24 amount of $1190 in perpetuity, the City unconstitutionally impaired its obligation to provide the

25 Maximum Subsidy. This impairment is substantial. Over the last decade, the Maximum Subsidy

26 has increased by about 64%, or $50 a year, on average. (LACAAI698-1728.) The impairment is

27 not reasonable and necessary to serve a public purpose. The City has pre-funded its retiree

28 medical subsidy for over 25 years based on assumed increases and is one of best funded programs

ASTAGNI, I IC 11155 & JOlI PROFESSION 12 I SFREIIV CRAMIJNFO

PETITIONER’S OPENING BRIEF IN GO’!, AMI(’K. SUPPORT OF WRIT OF MANDATE

ORI’ORA’1’1ON

I FI)RN IA 958 11

-7- LAAA v. City of Los Angeles

Case No. BS 135294

1 in the nation at over 70% pre-funded. While eliminating this benefit for LACAA members, the

2 City continues to provide the Maximum Subsidy to retirees and employees from other unions who

3 have contributed far less to LACERS in absolute dollars. Accordingly, the Court should issue a

4 writ compelling the City to provide LACAA members the Maximum Subsidy and the benefit of

5 increases they would have received but for the Freeze Ordinance.

6 A. The City Impaired a Contract Obligation to LACAA’s Members

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1. Eligibility for the Maximum Subsidy Is a Vested Contractual Right

8

The Maximum Subsidy is a vested contract right. (See LACAA0111-13 (Aspen Depo.,

9 111:8-17, 112:21-113:3.)) Public employers cannot diminish or eliminate retiree health care benefits.

10 (Thorning v. Hollister School District (1992) 11 Cal.App.4th 1598.) In Thorning, supra, retirees

11 sought a writ to invalidate the suspension of their post-retirement health benefits. Their employer had

12 provided full health coverage to retirees with at least 12 years of service. The employer began

13 requiring new retirees to pay the entire expense of continuing in the health plan. The retirees claimed

14 the provision of retiree health benefits was an inducement for their continued service and deferred

15 compensation. They relied on the promised benefits in maintaining their employment and choosing

16 their retirement date. (Id. at 1605.) The post-retirement health coverage was held a vested and

17 fundamental right for retirees who served when the policy was in effect. (Id. at 1605-09.)

18

A vested contractual right to a retiree health benefit may be implied from an ordinance when

19 the language or circumstances accompanying passage of the ordinance clearly evince a legislative

20 intent to create private rights of a contractual nature. (REQ C, supra.) Although the intent to contract

21 must be clear, the intent need not be express. "In California law, a legislative intent to grant

22 contractual rights can be implied from a statute if it contains an unambiguous element of exchange

23 of consideration by a private party for consideration offered by the state." (Id. at 1186-1187.)

24

LACAA members have a vested contractual right to an indexed Maximum Subsidy. Re qua

25 v. The Regents of the University of California (Dec. 31, 2012) 2012 WL 6962278, held that an

26 employer’s "obligation to provide lifetime retiree medical benefits to them on the same terms as other

27 University retirees maybe implied from the authorization of those benefits in 1961, the uninterrupted

28 provision of those benefits for more than 50 years, and from the University’s publications assuring

PETITIONER’S OPENING BRIEF IN LA CAA v. Citi of Los Angeles

\FIA(_,NLIIOL Fr): C) SUPPORT OF WRIT OF MANDATE -8- Case No. BS 135294 FLLI) L IOI!FS ’lrO!I)SIrL. ORI’OR\

)TRFF cK\M):T ))O)Y.)

employees they would receive health benefits in retirement so long as they met certain eligibility

2 requirements." Here, like alleged in Re qua, the legislative actions and history, as well as employee

3 representations confirm the existence of a contractual obligation to provide a Maximum Subsidy after

4 25 years of service that is indexed to the cost of two party health coverage.

5

The Enabling Ordinance created this contractual right in 1973. "The health insurance

6 premium subsidy and administrative costs will be provided solely by the City Employee’s Retirement

7 Fund.... in order to lessen or defray part or all of the cost of such health insurance to such eligible

8 retired employees as hereinafter defined." Since then, the City has consistently represented to

9 employees that eligibility for the Maximum subsidy is based on service time. (LACAAI 629 (Peters

10 Decl., ¶ 45; LACAA 0973-980, 0981-1624 (McTeague Dcci., ¶J 9-26); LACAA0361-67 (Payne

11 Depo., 19:18-25:8.)) As set forth infra, the City’s Resolutions, reports, and written statements

12 consistently informed City employees that continuing to work for the City would entitle them to a

13 retiree medical subsidy that would approximately cover the cost of two party medical coverage in a

14 City plan. The current Maximum Subsidy still covers the entire Kaiser two party non-medicare plan.

15 (LACAA0361-62 (Payne 81:18-82:7.)) Moreover, the City, by and through its agents, including

16 LACERS, consistently provided benefits summaries, workshops, slideshows and handouts promising

17 retirees under the age of 65, with at least ten (10) full years of City service would receive as a monthly

18 benefit "4% of the maximum subsidy for each year of service." (LACAA1629 (Peters Dccl., ¶ 45;

19 LACAA 0973-980, 0981-1624 (McTeague Dccl., ¶IJ 9-26); LACAA0361-67 (Payne Depo., 19:18-

20 25:8.) The City admits "prior to the July, 2011, freeze, a retiree would receive [sic]health subsidy that

21 would defray the entire cost of two-party coverage under at least one health care option."

22 (LACAA0028 (Aspen Depo., 28:15-21.)) Until 2011, the City never claimed it could deprive LACAA

23 members of their right to the adjusted Maximum Subsidy.

24

2. The Right to the Maximum Subsidy Vested Upon Employment

25

The City cannot credibly claim the right to the Maximum Subsidy does not vests until

26 retirement. The City’s Freeze Ordinance applies only to current LACAA members, while

27 acknowledging the indexing of the Maximum Subsidy is vested for LACAA members who retired

28 before the freeze was enacted. (LACAA0095-96 ((Aspen Depo., 95:22-96:22)); (LACERS 1999

PETITIONER’S OPENING BRIEF IN LA CAA v. CTh’ of Los Angeles

VOl SUPPORT OF WRIT OF MANDATE -9- Case No. BS 135294 LLEV & OHAS ’ROIESS()AAL, VAPOR "1 10

I (Admin. Code § 4.1103. 1 (a)-(b.))) The Court of Appeals for California’s Third Appellate District

I recently rejected such an artificial vesting distinction. (See Intl. Brotherhood v. City of Redding

I (2012) 210 Cal.App.4th 1114, 1122.) By entering public service an employee obtains a vested

I contractual right to earn a pension on the terms substantially equivalent to those then offered by the

I employer. (Carman v. Alvord (1982) 31 Cal.3d 318, 325.) Vesting occurs even when the right to

compensation does not mature until years later. (Miller v. State of California (1977) 18 Cal.3d 808.

I 817; United Firefighters ofLos Angeles City (UFLA C) v. City ofLos Angeles (1989)210 Cal. App .3 d

1095.) Public employees have a vested right to continue to earn additional retirement benefits

through continued service under the terms originally promised by the employer. (See Legislature v.

Eu (1991) 54 CaI.3d 492, 530; Pasadena Police Officers Ass ’n. v. City of Pasadena

("Pasadena")(1983) 147 CaI,App.3d 695.) Public employees have a constitutionally protected right

to any additional retirement benefits established during the employment. (County of Orange v. Ass ’r,

of Orange County Deputy Sheriffs (2011) 192 Cal.App.4th 21, 41-42.)

Our Supreme Court held pension benefits are "an element of compensation" and a "vested

contractual right" upon acceptance of employment that cannot be removed "without impairing

contractual obligation of the employing public entity." (Betts, supra, 21 Cal.3d at 863-64.) "To be

sustained as reasonable, alterations of employees’ pension rights must bear some material relation tc

the theory of a pension system and its successful operation, and changes in a pension plan which

result in disadvantage to employees should be accompanied by comparable new advantages." (Id.)

An employee’s contribution rate is a fixed element of the retirement system, it cannot be increased

on a prospective basis unless the employee receives a comparable new advantage. (Allen v. City o

Long Beach (1955)45 Cal.2d 128; Ass’n. of Blue Collar Workers v. Wills (1986) 187 Cal.App.3d

780; Pasadena, supra, 147 Cal. App3d at 702-703.) "In the absence of a clear and unequivocal

declaration in the pension provisions that benefits are payable only to the extent of available funds

from specified contributions, the liability to pay promised pension benefits is a general obligation o

the city." (Bellus v. City of Eureka (1968) 69 Cal.2d 336, 348-352; Carman v. Alvord, supra, 31

Cal.3d at 332-333.)

3. The Freeze Ordinance Impairs Vested Rights tn

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The City impaired LACAA members’ vested rights by reducing benefits without providing

a comparable advantage. The employees who paid the additional 4% to LACERS merely maintained

the existing Maximum Subsidy.’ ((LACAA0324 (Payne Depo., 44:19-23.)) "There is a strict

limitation on the conditions which may modify the pension system in effect during employment."

(Betts, supra, 21 Cal.3d 859) While pension benefits may be modified in order to maintain the

integrity of the pension system, the modifications must be reasonable i.e., the modifications must

bear some material relation to theory of a pension system and its successful operation, and changes

which result in disadvantages to employees should be accompanied by comparable new advantages.

(Id. at 864.) The Court further explained that an "offsetting improvement must also ’relate generally

to the benefit that has been diminished." (Id. at 864-6 5.) Here, no benefit offsets the elimination of

eligibility for the Maximum Subsidy. Similarly, the City is not providing any offsetting enhancement

for employees paying the additional contributions.

The methodology for increasing the medical subsidy under Ordinance Number 174365 is as

much an integral component of the vested medical benefit as is the application of COLAs to a pension

distribution. (UFLAC, supra 210 Cal. App.3d 1095.) The UFLAC case holds that the City cannot

prospectively impair vested benefits promised to employees under the terms of a retirement plan. The

court held that fiscal woes did not justify an impairment of vested rights to COLAs under a pension

plan. (Id, at 1113.) In so holding, the court gave great consideration to the reasonable expectations

of the employees. The court held the cap on benefits clearly defeated the employees’ reasonable

expectations that pension benefits would be fully adjusted for inflation, and post-retirement standards

of living would thus be protected from any further diminution. (Id. at 1108.) The City’s impairment

lessened the economic security of retirees, impairing rather than preserving their standard of living.

’Further, the extra 4% contribution may violate the Retirement Plan. Admin. Code sections 4.1023 (repealed) and 4.1022 require the City to provide at least 50% of each employees retirement benefit, i.e. the benefit must be at least twice the employee contribution. The "normal cost" is the cost of the benefits attributable to the current year of service. The normal cost of the pension benefit is 17.1%. (LACAA0896 (LACERS June 30, 2012 Actuarial Valuation and Review. p. 12.)) The additional 4% increases the employee contribution to 11%, which exceeds half the normal cost. The City admits the additional contributions are allocated to the pension find. Moreover: the 4% exceeds the entire normal cost of the subsidy, which is 3.55%. (LACAA0939 (LACERS June 30, 2012 Actuarial Valuation and Review, p. 8.))

PETITIONER’S OPENING BRIEF IN

LA CAA v. City of Los Angeles

r\s1 \cN T-I0L:

ANION SUPPORT OF WRIT OF MANDATE -11- CaseNo. BS 135294

LLEF & iOI-\S PROFESSIONAL ISJL1I[ILItI

STOrE: CR SM ONTO. 015

The Freeze Ordinance suffers the same defects as the City’s failed attempt to eliminate post

2 employment COLAs 25 years ago. LACAA members have a reasonable expectation that they will

3 remain eligible to receive the Maximum Subsidy, as determined annually by the LACERS Board,

4 without having to pay increased pension contributions. This expectation is based on the Enabling

5 Ordinance; subsequent ordinances consistently allowing the Board to increase the subsidy; and the

6 City’s historic interpretation and implementation of those ordinances, and the City’s express

7 representations to its employees, including LACAA members, the subsidy would not be impaired..

8 The City promised LACAA members that the Maximum Subsidy would continue to include

9 an inflation hedge so that, no matter what portion of the Maximum Subsidy they earned, it would

10 offer some protection for themselves and their eligible dependents. The City’s breached those

11 members’ vested rights by eliminating the Maximum Subsidy with the Freeze Ordinance.

12 B. The Impairment is Substantial

13 The Freeze Ordinance substantially impaired LACAA members’ contractual right to receive

14 the Maximum Subsidy. impairments of financial terms of a contract are indisputably substantial. The

15 most that current LACAA members can receive for retiree medical costs is $1,190 per month, because

16 LACAA members are no longer entitled to the Maximum Subsidy (LACAA0039(Aspen Depo.,

17 39:10-40:4.)) In 2012, the Maximum Subsidy was increased to $1,367 a month. (LACAA1721-

18 27(Resolution 120828-A.)) As a result, the impairment resulting from the Freeze Ordinance has

19 already deprived eligible retiring LACAA members of approximately $2124 a year in retiree health

20 benefits. As medical costs increase, the impairment will become even more substantial. LACERS’

21 actuary has assumed an 80% increase compounded in medical costs over the next five years alone.

22 (LACAA0776 (Actuarial Valuation and Review as of June 30, 2011.))

23 C. The Impairment is Not Reasonable or Necessary for a Legitimate Public Purpose

24 The City cannot meet its burden of proving the impairment was reasonable and necessary to

25 serve a legitimate public purpose. (Bd. of Administration v. Wilson (1997) 52 Cal.App.4th 1109,

26 1155.) "Complete deference to a legislative assessment is not appropriate because the States self-

27 interest is at stake."( Valdes 1’. Cory (1983)139 Cal. App.3d 773, 789-790; see also Allied Structural

28

PETITIONER’S OPENING BRIEF IN

LACAA i. Cliv of Los Angeles

A01\1F101LLLR L JOHN ANUK SUPPORT OF WRIT OF MANDATE

-12- Case No. BS 135294

RO FE S S tON

ISfl4flII

STItF NL SFt

1 Steel Co. v. Spannaus (197 8) 43 8 U. S. 234, 248.) Strict scrutiny applies. (California Teachers Assn.

2 v. Cor’ (1984) 155 Cal.App.3d 494, 511.)

3

The City enacted the Freeze Ordinance to force unions with closed contracts to pay more for

4 existing benefits. This is not a legitimate purpose. The impairment is unnecessary; the City has pre-

5 funded the benefit at a level sufficient to pay the Maximum Subsidy with periodic increases to keep

6 pace with medical inflation. The impairment is unreasonable; no enhancement was provided to offset

7 the extra contributions demanded, and the additional revenue is not allocated to fund the benefit.

8

1. The City Did Not Adopt the Freeze Ordinance for a Legitimate Public Purpose

9

The City admits it adopted the Freeze Ordinance to extract contributions from employees in

10 closed labor contracts, because it could not otherwise force them to pay increased contributions. (See

11 Aspen Depo., 103:4-104:13) The additional contributions simply reduce the City’s contributions to

12 LACERS from the General Fund. The City cannot claim it needed to impair LACAA members’ right

13 to receive the Maximum Subsidy to save money. Saving money is not a valid purpose justifying

14 contract impairment (U.S. Trust Co. v. New Jersey (1977) 431 U.S. 1.)" "A governmental entity can

15 always find a use for extra money, especially when taxes do not have to be raised." (Valdes, 139 Cal.

16 App.3d 790.)

17

2. The Impairment is Not Reasonable or Necessary

18

The City cannot claim it could not afford to continue funding the Maximum Subsidy. Future

19 increases in the Maximum Subsidy were always assumed in determining the contribution rates

20 necessary to maintain the benefit. The subsidy is 71.65% pre-funded. (LACAA0942 (LACERS June

21 30, 2012 Actuarial Valuation and Review, p. 11.)) The Freeze Ordinance only applied to 24% of the

2’) employees in LACERS. (LACAA0522 (84:10-15);LACAA0757(201 1 CAFR p.6)) If the "freeze"

L.D applied to all employees, liabilities would be reduced about $581 million. (LACAA0526(Hsi Depo.,

24 88:7-19.)) Because the total unfunded liabilities are only $422 million, a complete freeze would

25 result in $159 million in excess pre-funding of the Maximum Subsidy. (LACAA0209.) Because

26 LACAA members future increases in the Maximum Subsidy are already substantially funded, the

27 "freeze" transfers the pre-funding of their benefits to pay for other employees’ benefits.

28

PETITIONER’S OPENING BRIEF IN

LA CAA v. City of Los Angeles \STACNL H0L5

NII(1, SUPPORT OF WRIT OF MANDATE

1-,

Case No. BS 135294 ELLER K ’i)HNS

12 STRU;

The Freeze Ordinance permanently deprives LACAA’s members of their right to receive the

2 Maximum Subsidy. There is no offsetting benefit. The City’s actuary confirmed that employees

3 exempted from the Freeze Ordinance received no additional benefit in return for almost doubling their

4 retirement contributions. The Freeze Ordinance does not provide for the eventual restoration of the

5 benefit to LACAA members. As such, the City cannot claim the impairment imposed by the Freeze

6 Ordinance is temporary in nature, with interest deferred during the impairment. Thus, the impairment

7 is not reasonable and necessary. (See Olson v. Corv (1980) 27 Cal.3d 532, 539.)

8

The City is not using the additional 4% contribution to improve the funding levels of the

9 retiree health subsidy. (LACAA1938-43(Exempting Ordinance.)) Employees still eligible for the

10 Maximum Subsidy only agreed to increase their pension contributions from 7% to 11 %. (See

11 LACAA0186 (Amend. to LOA dated May 11, 2011)) According to the City’s financial statements,

12 employees’ pension contributions - including those paid by employees exempt from the freeze- are

13 not used to fund retiree health benefits. (LACAA0085 (Aspen 85:2-7; LACAA 0217, Audited

14 Financial Statement ending June 30, 2012.)) Instead, contributions are "deposited in each members

15 individual account as provided in Charter Section 1 162."(LACAA1939-43 (Freeze Ordinance.))

16 Moreover, impairing LACAA members’ right to the Maximum Subsidy for refusing to pay

17 an additional 4% while continuing to provide it to lower paid workers who agreed to pay the

18 additional 4% is inequitable. An additional 4% contribution in 2011 from a LACAA represented top

19 step Deputy City Attorney IV costs approximately $4,587 more than a 4% contribution from a top

20 step Electrical Conduit Mechanics for the same medical benefit. (Compare LACAA 1956-93 (Amend.

21 No. I to MOU #29, Appendix F to LACAA1 831 (Amend. No. 2 to MOU # 2)) The impairment is

77 also unreasonable because the City still provides the Maximum Subsidy to employees whose unions

23 agreed to pay the additional 4% contribution, regardless of how long they continue working for the

24 City. Such employees will receive the Maximum Subsidy for the rest of their lives, even if they - retired

25 the day after their union agrees to pay the additional 4%. By contrast, LACAA members retiring on

26 the same day would receive only a fiat $1,190 each month. (LACAA 0096 (Aspen Depo 96:12-22.))

27 The impairment is unreasonable. The City permanently impaired LACAA members rights,

28 while continuing to pay the Maximum Subsidy to retirees whose unions agreed to pay for something

PETITIONER’S OPENING BRIEF IN

LA CAA 1’. City of Los Angeles

\S1 AC,’:i IN

SMEL SUPPORT OF WRIT OF MANDATE -14- Case No. BS 135294

LLEN & of PROFESS J( (N

1 STRFF RAM I

ostensibly unrelated to the cost of the benefit. As such, the Freeze Ordinance unconstitutional!)

2 impairs LACAA members’ vested rights.

3 D. LACAA Members Justifiably Relied on City Promises to Provide a Maximum Subsid

4

Even if, for the sake of argument, LACAA members had no contractual right to the Maximun

5 Subsidy, promissory estoppel entitles them to it. A promise is binding when the promisor should

6 reasonably expect it to induce action or forbearance on the part of the promisee, and the promise

7 induces such action or forbearance. (Restatement of Contracts, § 901(1).) Promissory estoppel applies

8 to promises for pension benefits. (Hunter v. Sparling (1948) 87 Cal.App.2d 711, 725.) The City

9 promised LACAA members they would receive the Maximum Subsidy if they retired with 25 years

10 of City service credit, or a portion of the Maximum Subsidy if they retired with at least ten years of

11 service credit. The City expected this promise to induce LACAA members to work for the City and

12 forgo other employment activities. (LACAAO1 10-11 (Aspen Depo., pp. 110:15-19, 111:8-17.)) The

13 promise indeed caused LACAA members to continue working for the City instead of seeking

14 alternative employment. (See, e.g., LACAA0973-80 (McTeague Decl., ¶J 7-23.)) It is too late for

15 employees who worked for many years to receive the Maximum Subsidy to find new jobs with

16 employers providing medical coverage. Justice requires the City make good on its promise to pay

17 these employees the Maximum Subsidy they worked for.

18

Iv. CONCLUSION

19

For the forgoing reasons, LACAA respectfully asks the Court to issue a writ commanding the

20 City and LACERS to establish the Maximum Subsidy for LACAA’s members and former members

21 without regard to the Freeze Ordinance, an order declaring the Freeze Ordinance unlawfully impaired

22 LACAA members’ rights, an injunction enjoining enforcement of the Freeze Ordinance, and an award

23 for the attorney’s fees and costs LACAA incurred in bringing this action.

24 Respectfully submitted:

25 Dated: February, 2013 MASTAGNI, HOLSTEDT, AMICK,

26

MILLER & JOHNSEN, A.P.C.

27

It-

28

tavia L. Iviaslagni, Attorneys for Petitioner

1ASIAGNI,I0LS1I

111.1 FR & JOINS PROFESSIONAL

2 1 STREET

ACRANIENI I.) C7

PETITIONER’S OPENING BRIEF IN AMILK SUPPORT OF WRIT OF MANDATE

Poll ’\TI ON

-15- LACAA v. City of Los Angeles

Case No. BS 135294