Retired Employees Association v. County of Orange

Filing

FILED OPINION (M. MARGARET MCKEOWN, RONALD M. GOULD and JAY S. BYBEE) AFFIRMED. Judge: MMM Authoring, FILED AND ENTERED JUDGMENT. [8977568]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

RETIRED EMPLOYEES ASSOCIATION
OF ORANGE COUNTY, INC.,
Plaintiff-Appellant,

No. 12-56706

v.

D.C. No.
8:07-cv-01301AG-MLG

COUNTY OF ORANGE,
Defendant-Appellee.

OPINION

Appeal from the United States District Court
for the Central District of California
Andrew J. Guilford, District Judge, Presiding
Argued and Submitted
November 4, 2013—Pasadena, California
Filed February 13, 2014
Before: M. Margaret McKeown, Ronald M. Gould,
and Jay S. Bybee, Circuit Judges.
Opinion by Judge McKeown

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REAOC V. COUNTY OF ORANGE
SUMMARY*

Medical Benefits
The panel affirmed the district court’s summary judgment
in favor of Orange County in an action brought by the Retired
Employees Association of Orange County alleging that its
members had an implied vested right to the pooling of their
health care premiums with those of current employees.
The panel held that the Association failed to raise a
genuine issue of material fact regarding its alleged implied
contract right to the pooled premium, leaving its implied
contract claim without factual or legal support. The panel
held that a practice or policy extended over a period of time
does not translate into an implied contract right without clear
legislative intent to create that right—an intent that the
Association had not demonstrated in this case. The panel
held that the nature of the Association’s evidence underscored
the absence of any definitive intent or commitment on the
part of the County to provide for the pooled premium.

COUNSEL
Michael P. Brown (argued), Law Office of Michael P. Brown,
Seattle, Washington; Ernest Galvan, Rosen Bien Galvan &
Grunfeld LLP, San Francisco, California, for PlaintiffAppellant.

*

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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REAOC V. COUNTY OF ORANGE

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Arthur A. Hartinger (argued) and Jennifer L. Nock, Meyers,
Nave, Riback, Silver & Wilson, Oakland, California, for
Defendant-Appellee.

OPINION
McKEOWN, Circuit Judge:
For the second time, we consider what health benefits
retired Orange County employees have under contract with
the County of Orange (“County”). The Retired Employees
Association of Orange County (“Retired Employees” or
“REAOC”), which represents 4,600 retired employees and
their spouses, sued the County, alleging that the Retired
Employees have an implied vested right to the pooling of
their health care premiums with those of current employees
(“pooled premium”). Like the district court, we are
sympathetic to the retirees’ plight. As the California Court of
Appeal reflected in an earlier case involving medical benefits
for retirees, “[t]he spiraling cost of health care in America is
simply unconscionable. The present high cost of medical
insurance has unfortunately become a fact of life which in
most instances results in disparate rates and medical coverage
for those who can least afford it, including retirees.” Ventura
Cnty. Retired Emps. Ass’n v. Cnty. of Ventura, 228 Cal. App.
3d 1594, 1598 (1991). Nonetheless, we have no choice but
to affirm the district court’s grant of summary judgment in
favor of the County because REAOC failed to raise a genuine
issue of material fact regarding its alleged implied contract
right to the pooled premium, leaving its implied contract
claim without factual or legal support.

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REAOC V. COUNTY OF ORANGE
FACTUAL AND PROCEDURAL BACKGROUND

I. HISTORY OF THE COUNTY’S POOLED BENEFITS
This suit arises from the County’s decision to stop
pooling retired and active employee health insurance
premiums. The County first began providing group medical
insurance for its retired employees in 1966. The County
subsequently decided to cover retiree health insurance
premium costs through a monthly grant.
Over a decade later, the County’s Board of Retirement
(“Retirement Board”) voted, due to budgetary concerns, to
stop providing monthly grants for prospective retirees but to
continue the grants for employees retiring before June 28,
1979. Orange Cnty. Emps. Ass’n v. Cnty. of Orange,
234 Cal. App. 3d 833, 839 (1991). This decision provoked
the first round of benefits litigation, which took six years to
wind its way through the California courts. Id. at 837, 845.
The Orange County Employees Association (“OCEA”) and
other unions asked the County Board of Supervisors
(“Board”) to override the Retirement Board’s decision on
statutory grounds, but the Board refused.1 Orange Cnty.
Emps. Ass’n, 234 Cal. App. 3d at 837–41. The California
Court of Appeal ruled that “the statutory scheme permits
local agencies to consider the differences between retired and
1

The County requires the Board to approve organized employee and
personnel compensation by resolution. Orange County, Cal., Code of
Ordinances tit. 1, div. 3, art. 1, § 1-3-2; see also Cal. Gov’t Code § 25300
(2013). The Board approves retiree compensation through collective
bargaining agreements with labor representatives known as Memoranda
of Understanding (“MOUs”). See Harris v. Cnty. of Orange, 682 F.3d
1126, 1129 (9th Cir. 2012). Upon adoption by the Board, these MOUs
become binding.

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active employees in providing health benefits.” Id. at 843.
The court of appeal also upheld the County’s decision, stating
that the relevant statute “does not mandate equal treatment of
active and retired employees.” Id. at 841.
Apart from the dispute over responsibility for payment of
premiums, another cost dispute began to brew over premium
rates. From 1966 through 1984, on an annual basis, the
County approved one premium rate for active employees and
another rate for retired employees. Under this separate
premium rate structure, the Board intended for each group’s
premiums to cover that group’s claims and administrative
costs.
Then, starting in 1985 and continuing through 2007, the
County decided to pool health insurance premium rates for
retired and active employees. The Board approved the pooled
premium to “equaliz[e] active and retiree rates” and to
resolve a $900,000 budget shortfall for retiree healthcare
costs that resulted from a large number of retiree insurance
claims mistakenly being reported as active employee claims.
Pooling retiree premium rates with those of active employees
immediately increased retiree rates by 72% on average, a less
drastic measure than the alternative considered of increasing
only retiree premium rates by 112% on average. Over time,
however, the pooled premium substantially subsidized retiree
premium rates. According to expert testimony, the pooled
premium remained an important issue in negotiations
between the Board and the unions. The Board approved these
pooled health plan rates on a yearly basis.
The County continued to face mounting budgetary
concerns, caused in part by high health insurance premium
costs. In 2004, the County conducted a review of its retiree

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health insurance program. After further negotiations between
the County and various labor unions, the parties reached an
agreement, effective January 1, 2008, to reform the County’s
health care program. In relevant part, the agreement split the
insurance rate pool. This pool splitting meant that active
employee health benefit premiums would be calculated
separately from those of retired employees. Although
REAOC did not directly participate in these negotiations, it
did take part in related discussions with other labor unions
and the County.
II. CHALLENGES TO THE COUNTY’S TERMINATION OF THE
POOLED PREMIUM
In response to the County’s decision to terminate the
pooled premium, REAOC filed suit in the Central District of
California seeking declaratory and injunctive relief. Among
other claims,2 REAOC argued that the County’s longstanding
practice of pooling and the County’s representations to
employees regarding that practice created an implied contract
right to continued pooled premiums for employees who
retired prior to January 1, 2008. Retired Emps. Ass’n of
Orange Cnty. v. Cnty. of Orange (“REAOC I”), 632 F. Supp.
2d 983, 986 (C.D. Cal. 2009). On cross-motions for
summary judgment, the district court granted the County’s
motion for summary judgment on all claims. Id. at 988. The
district court determined that “California courts have refused
to find public entities contractually obligated to provide
specified retirement benefits like those [REAOC] seeks in the
absence of explicit legislative or statutory authority.” Id. at

2

REAOC’s other claims included denial of due process in violation of
the United States and California Constitutions, breach of contract, and age
discrimination.

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987. The court found that the County “has no contractual
obligation to continue providing the pooling benefit” to
retirees. Id. at 987.
REAOC appealed the judgment with respect to its
contract clause claims. In response, we certified the
following question to the California Supreme Court:
“Whether, as a matter of California law, a California county
and its employees can form an implied contract that confers
vested rights to health benefits on retired county employees.”
Retired Emps. Ass’n of Orange Cnty. v. Cnty. of Orange
(“REAOC II”), 610 F.3d 1099, 1101 (9th Cir. 2010). The
California Supreme Court answered affirmatively, stating that
vested health benefits “can be implied under certain
circumstances from a county ordinance or resolution.”
Retired Emps. Ass’n of Orange Cnty. v. Cnty. of Orange
(“REAOC III”), 266 P.3d 287, 301 (Cal. 2011).3 The court
declined, however, to determine whether such circumstances
had been met with respect to REAOC and the County. Id.
We remanded the case to the district court for further
proceedings in light of REAOC III. Retired Emps. Ass’n of
Orange Cnty. v. Cnty. of Orange (“REAOC IV”), 663 F.3d
1292, 1292 (9th Cir. 2011) (per curiam).
On remand, the district court again granted the County’s
motion for summary judgment. Addressing REAOC’s
implied contract theory, the district court held that “[u]nder

3

We refer to the California Supreme Court decision as REAOC III
because it was the third court in a sequence to consider the suit brought by
REAOC. We note that the opinion in Sonoma County Association of
Retired Employees v. Sonoma County (“Sonoma Retired Employees”),
708 F.3d 1109 (9th Cir. 2013), referred to the California case as REAOC
II.

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California Government Code Section 25300, any right to
employee compensation must in some way be approved by
the Board of Supervisors with a resolution or ordinance.”
The court concluded that REAOC “bears the burden of
proving that the relevant statutes or ordinances reflect ‘clear’
legislative intent to enter into such a contract” and that it
failed “to make this showing.”
ANALYSIS
We begin with the undisputed proposition that the County
and its retired employees have an express contract that
includes health benefit provisions. That contract is the
product of negotiations resulting in binding MOUs (when
adopted by County resolution) between the County and the
Retired Employees. The Retired Employees acknowledge
that none of the MOUs contain express provisions regarding
pooling. Instead, the Retired Employees argue that the
contract contains an implied right to the pooled premium. See
REAOC III, 266 P.3d at 295 (noting that the Retired
Employees stated that they have an express contract and are
“seeking recognition only of an implied term” of that
contract). The issue we consider on appeal is whether, under
California law, such an implied term exists with respect to the
pooled premium.
I. FRAMEWORK FOR
CONTRACT RIGHT

EVALUATING

AN

IMPLIED

In REAOC III, the California Supreme Court provided
guidance on assessing implied contract rights in the context
of municipal employee benefits under California law. It held
that “a vested right to health benefits for retired county
employees can be implied . . . from a county ordinance or

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resolution,” when “the statutory language or circumstances
accompanying its passage clearly . . . evince a legislative
intent to create private rights of a contractual nature
enforceable against the [governmental body].” REAOC III,
266 P.3d at 296, 301 (omission and alteration in original)
(internal quotation marks omitted). The court cautioned that
“implied rights to vested benefits should not be inferred
without a clear basis in the contract or convincing extrinsic
evidence.” Id. at 299. The opinion provided no further
explanation of the distinction, if any, between extrinsic
evidence and accompanying circumstances. The court did
emphasize, however, that any additional evidence must flow
from a resolution or ordinance and “clearly evince” the
parties’ intent to create an implied contractual right. Id. at
289.
Following REAOC III, we had occasion to consider an
implied contract term in another case involving retired
municipal employees. In Sonoma Retired Employees, we
determined that “where [a] County intended to create a
contractual obligation by resolution or ordinance, such a
contract may include implied terms that can be inferred from
[e]vidence derived from experience and practice.” 708 F.3d
at 1116 n.4 (second alteration in original) (internal quotation
marks omitted). We explained that if the retiree association
“plausibly allege[d] that the County created a contract by
means of a formally enacted resolution which ratified an
MOU, for instance, then the Association may introduce
evidence of that contract’s implied terms, including testimony
regarding the County’s intent.” Id.
Consideration of extrinsic evidence does not have a
burden-shifting effect, despite the County’s protestations and
the district court’s suggestion otherwise. “[I]t is presumed

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that a statutory scheme is not intended to create private
contractual or vested rights.” REAOC III, 266 P.3d at 295
(internal quotation marks omitted).
The Retired
Employees—not the County—ultimately bear the “heavy
burden” of overcoming the presumption against a legislative
enactment creating a private contractual or vested right. See
id. at 295, 298; see also Walsh v. Bd. of Admin., 4 Cal. App.
4th 682, 697 (1992). To suspend legislative control in favor
of an implied contract right, the evidence must be
“unmistakable” so “that neither the governing body nor the
public will be blindsided by unexpected obligations.”
REAOC III, 266 P.3d at 296–97 (internal quotation marks
omitted). Here, REAOC must bear this “heavy burden” in its
effort to raise a genuine issue of material fact that the County
intended to create an implied, vested contract right. See id. at
295–98.
II. REAOC’S CLAIM TO AN IMPLIED CONTRACT RIGHT
TO THE POOLED PREMIUM
Viewing the evidence in the light most favorable to
REAOC as the nonmoving party, we review de novo whether
any genuine issue of material fact exists and whether the
district court correctly applied the relevant substantive law.
See Fed. R. Civ. P. 56(c); Balint v. Carson City, Nev.,
180 F.3d 1047, 1050 (9th Cir. 1999) (en banc). In summary,
REAOC’s evidentiary support for the implied contract term
rests on the following: (i) that its implied pooled premium
was closely connected to the express contract provisions
providing health plan benefits to retirees for life; (ii) that the
pooled rate was “central to the bargained-for exchange
between the parties,” RUI One Corp. v. City of Berkeley,
371 F.3d 1137, 1148 (9th Cir. 2004); and (iii) that statements

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made by County officials demonstrated that the implied right
existed.
REAOC alleges that its implied contract right stems from
the MOUs adopted annually by Board resolution. These
resolutions followed the same pattern year by year: the Board
approved, and thereby contractually committed to, the
employee and retiree health plan rate for that particular year.
Yet these MOUs and resolutions only support enrollment in
County health plans at a specific rate for a given year, not a
right to a lifetime pooled premium. For example, REAOC
posits that the Board intended Resolution 84-1460, which
created the pooled premium, to not only correct the
administrative error that created the budget shortfall, but also
to confer a lifetime benefit to retirees. To be sure, the Boardadopted MOU included the pooled premium, but REAOC
concedes that the County did not expressly commit to its
continuance. More precisely, that resolution authorized “the
adoption of 1985 health rates,” and says nothing about future
premiums.
Beyond the initial pooling resolution, REAOC points to
later MOUs adopted by the Board and official statements by
the County that purportedly contemplated lifetime retiree
health care benefits. For instance, as evidentiary support for
its implied contract right claim, REAOC highlights an MOU
stating that retirees may change their health care plans at their
retirement date, a declaration from a County employee
benefits director explaining that retirees are eligible for
general health plans as a “lifetime benefit,” and a 2007
Citizens’ Report from the County’s Auditor-Controller
characterizing the pooled rate structure as part of the
County’s overall compensation package. Yet REAOC
provides no evidence that credibly, let alone unmistakably,

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supports its claim. To the contrary, resolutions such as
Resolution 84-1460 refer only to a one-year contractual
obligation. Similarly, a Board presentation to the unions
stating that rate pooling will continue at that time does not
demonstrate that the rate is anything more than a policy
decision for that specific period. A practice or policy
extended over a period of time does not translate into an
implied contract right without clear legislative intent to create
that right—an intent that REAOC has not demonstrated here.
REAOC III, 266 P.3d 289, 296. The express terms of the
MOUs and resolutions that REAOC highlights fail to raise a
genuine issue of material fact because they do not show any
link to REAOC’s claim of an implied right to an ongoing
pooled premium.
REAOC’s assertions that its involvement in negotiations
with the County reveal an implied contract right to the pooled
premium also lack evidentiary support. REAOC states that
when the Board passed the pooling resolution, the “Board and
the Unions were in the midst of a years-long heated battle
regarding the Unions’ demand for greater retiree medical
benefits.” We acknowledge that these battles occurred, but
no specific language or documentation from these
negotiations suggests that REAOC entered into the claimed
“bargained-for” agreement with the County.
The nature of REAOC’s evidence underscores the
absence of any definitive intent or commitment on the part of
the County to provide for the pooled premium: a slide
presented by the County’s chief negotiator that merely
includes the value of the pooled premium; a negotiation
document prepared by the Board that expressly uses the
“assumption” that the pooled premium would continue for the
purposes of making retiree benefit projections; and another

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presentation slide providing that “retiree rates will continue
to be pooled for rate setting purposes” for that year. REAOC
also cites to the declaration of a human resources assistant
director who stated that the Board was unable to remove the
benefit during collective bargaining because the MOU
included the “Retiree Medical Program,” a program
encompassing the pooled premium.
However, a
supplemental statement clarified that the MOU did not
contain the pooled rate structure. These limited fragments of
evidence from County documents do not raise a genuine issue
of material fact regarding any “bargained-for” exchange for
the pooled premium. At best, this evidence simply
corroborates that the unions and County continued to discuss
the pooled premium; it does not raise a genuine issue of
material fact regarding an implied term.
The other County statements raised by REAOC refer
primarily to impressions of Board policies, not official
County statements or documents. For instance, a County
official’s statement that the County categorized the pooled
premium as an “Other Post Employment Benefit” does not
mean that this accounting classification carried any
contractual significance beyond the basic definition of that
category being an exchange of salaries and benefits for
employee services rendered. Finally, REAOC’s argument
about the general nature of retirement benefits as lifetime
benefits is unavailing, because entitlement to those benefits
does not reveal any agreement about REAOC’s alleged
implied contract right to the pooled premium.
REAOC faults the district court for its narrow treatment
of extrinsic evidence. Although it did not have the benefit of
Sonoma Retired Employees at the time of its decision, the
district court nonetheless considered some of REAOC’s

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extrinsic evidence accompanying the passage of relevant
resolutions and MOUs. For example, it briefly examined the
circumstances surrounding the passage of Resolution
84-1460, when the pooled premium first began, stating in one
line that the pooled premium “did not arise out of a
bargained-for exchange with employees.” The district court
then cited to later legislation that it determined did not
include language suggesting an ongoing County obligation to
provide the pooled premium.
In a separate section on “extrinsic evidence,” the district
court stated that the “extrinsic course-of-conduct evidence
that [REAOC] ask[ed] this Court to consider is necessarily
irrelevant,” because the resolutions were not ambiguous.
Reasoning that its examination of extrinsic evidence would
shift the burden of proof onto the County, the district court
stated that it would not “cobble together evidence to
manufacture a promise that the Board never made.”
We do not cabin the role of extrinsic evidence as narrowly
as the district court did. Indeed, the California Supreme
Court recognized the role of “convincing extrinsic evidence,”
REAOC III, 266 P.3d at 299, and in Sonoma Retired
Employees, we noted that implied terms may include
“testimony regarding the County’s intent,” 708 F.3d at 1116
n.4.
Nonetheless, we do not need to address the precise
contours for admitting and evaluating extrinsic evidence with
respect to implied terms of a contract. Our review of the
record reveals that REAOC’s claim to an implied contractual
right to the pooled premium falls short even if we consider its
extrinsic evidence. Missing here is “statutory language or
circumstances accompanying its passage clearly . . .

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evinc[ing] a legislative intent to create [implied] private
rights of a contractual nature enforceable against [the
County]” regarding the pooled health insurance premium.4
REAOC III, 266 P.3d at 296 (omission in original) (internal
quotation marks omitted). We affirm the district court’s
order granting the County’s motion for summary judgment.
AFFIRMED.

4
REAOC also argues that its implied contractual right to the pooled
premium had “vested.” Because there is no implied term with respect to
the pooled premium, we need not address the vesting claim. We also need
not reach REAOC’s request for reassignment to a different judge in the
event of remand.