Sonoma County Association of Retired Employees v. Sonoma County

Filing 159

ORDER Granting 142 Motion for Reconsideration and Clarifying Ruling. Signed by Judge Claudia Wilken on 04/22/2015. (tmiS, COURT STAFF) (Filed on 4/22/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SONOMA COUNTY ASS’N OF RETIRED
EMPLOYEES,

ORDER GRANTING
MOTION FOR
RECONSIDERATION
AND CLARIFYING
RULING

Plaintiff,

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v.

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No. C 09-4432 CW

SONOMA COUNTY,
(Docket No. 142)
Defendant.

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/

United States District Court
For the Northern District of California

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Plaintiff Sonoma County Association of Retired Employees

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(SCARE) seeks reconsideration of this Court’s January 10, 2014
Order Granting in Part Defendant’s Motion to Dismiss (Docket No.
96).

Defendant Sonoma County opposes the motion.

considered the papers submitted, the Court GRANTS the motion.
BACKGROUND

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Having

SCARE is a nonprofit mutual benefit corporation that
“promotes and protects the welfare and interests of the retired
employees of Sonoma County.”
Amended Complaint (2AC) ¶ 11.

Docket No. 75, SCARE's Second
Roughly fourteen hundred Sonoma

County retirees currently claim membership in the organization.
Id. ¶ 12.
The County has subsidized its retirees’ healthcare benefits
since at least 1964.

Id. ¶ 14.

In August 2008, the County’s

Board of Supervisors enacted a resolution capping its healthcare
benefit contributions at the flat amount of $500 per month for all
retirees as well as for certain active employees.

Id. ¶ 32.

The

County planned to phase in this new cap over a five-year period

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beginning in June 2009.

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affected by the new cap, the County enacted a resolution in

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September 2008 providing active employees with an additional $600

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monthly cash allowance for healthcare costs.

Id. ¶¶ 33-34.

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Retirees were not provided the same benefit.

Thus, at the

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conclusion of the five-year phase-in period, active employees

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would be receiving $1,100 per month from the County in healthcare

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benefits while retirees would be receiving only $500 per month.

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SCARE brought this action in September 2009, alleging that

Id.

To assist active employees adversely

United States District Court
For the Northern District of California

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the County’s new cap on healthcare benefit contributions would

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harm many retirees by forcing them to pay significantly higher

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healthcare premiums while living on a fixed income.

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complaint, SCARE asserted that the new cap constituted a breach of

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the County’s longstanding agreement to pay for its retirees’

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healthcare benefits costs in perpetuity.

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alternative theories to explain how and when the County entered

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into such an agreement.

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series of promises, dating back to at least 1964, to pay “all or

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substantially all” of the costs of healthcare benefits for its

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retirees and their dependents.

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County entered into a “tie agreement” in or around 1985 under

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which it promised to provide its retirees and their dependents

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with the same level of healthcare benefits that it provided to

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active management employees.

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subsequently entered into contracts in which the tie agreement was

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an explicit or implied term.

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binding promise to provide post-retirement healthcare benefits in

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perpetuity under either theory of contract formation.

In its

SCARE offered two

First, it alleged that the County made a

Second, SCARE alleged that the

SCARE contends that the County

The County denied that it had made a

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In May 2010, this Court granted, with leave to amend, the

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County’s motion to dismiss SCARE’s complaint.

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(Sonoma I).

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municipal governments could only create express contracts for

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public employment by means of an ordinance or resolution and SCARE

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had failed to identify in its complaint any such ordinances or

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resolutions promising lifetime healthcare benefits to retirees.

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In July 2010, SCARE filed an amended complaint in which it

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Docket No. 34

The Court explained that, under California law,

sought to cure this deficiency by adding new factual allegations

United States District Court
For the Northern District of California

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to support its claims.

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amended complaint sixty-eight exhibits which consisted of various

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resolutions, ordinances, and memoranda of understanding (MOUs)

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signed by County representatives.

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documents, taken together, established a binding promise by the

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County to provide healthcare benefits to all retirees in

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perpetuity.

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Docket No. 35.

SCARE attached to its

According to SCARE, these

In November 2010, this Court once again dismissed SCARE’s

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complaint, this time without leave to amend.

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(Sonoma II).

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found that none of the new factual allegations or various

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resolutions, ordinances, and MOUs attached to the complaint

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supported SCARE’s claim that the County entered into a binding

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contract to provide post-retirement healthcare benefits in

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perpetuity.

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ordinances evidenced the County’s longstanding practice of paying

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all or substantially all of the costs of retirees’ healthcare

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benefits, they did not contain an express promise that the County

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would continue to do so in perpetuity.

Docket No. 51

After reviewing the amended complaint, the Court

The Court explained that, while the resolutions and

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Furthermore, the Court

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noted, none of the attached resolutions or ordinances explicitly

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adopted the alleged 1985 tie agreement and none of the MOUs

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contained durational language suggesting that they were meant to

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confer rights in perpetuity.

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identify a binding promise on which its contract claims were based

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despite a second opportunity to do so, the Court dismissed its

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complaint with prejudice.

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month.

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Thus, because SCARE had failed to

SCARE filed an appeal the following

While that appeal was pending, the California Supreme Court

United States District Court
For the Northern District of California

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issued its opinion in Retired Employees Association of Orange

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County, Inc. v. County of Orange, 52 Cal. 4th 1171 (2011) (REAOC

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II).

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law, a California county and its employees can form an implied

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contract that confers vested rights to health benefits on retired

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county employees.”

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this question to the California Supreme Court in a case where a

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county government sought to reduce its contributions to its

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retired employees’ healthcare benefit plans.

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Ass’n of Orange Cnty. Inc. v. County of Orange, 610 F.3d 1099 (9th

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Cir. 2010).

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the certified question by holding that “a vested right to health

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benefits for retired county employees can be implied under certain

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circumstances from a county ordinance or resolution.”

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at 1194.

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That opinion addressed “[w]hether, as a matter of California

Id. at 1176.

The Ninth Circuit had certified

See Retired Emps.

In REAOC II, the California Supreme Court answered

52 Cal. 4th

In February 2013, the Ninth Circuit vacated this Court’s

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November 2010 order of dismissal.

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F.3d 1109, 1119 (9th Cir. 2013) (Sonoma III).

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of appeals agreed that SCARE’s first amended complaint failed to

SCARE v. Sonoma County, 708

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Although the court

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state a claim, it held that SCARE should be granted leave to amend

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in order to plead that, under REAOC II, the County made an implied

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promise to provide post-retirement healthcare benefits.

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Ninth Circuit explained, “The district court did not have the

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benefit of REAOC II, but in light of its clarification that a

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public entity in California can be bound by an implied term in a

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written contract under specified circumstances, we cannot say that

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the Association’s amendment of its complaint a second time would

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be futile.”

United States District Court
For the Northern District of California

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Id.

Id.

The

It therefore remanded the action “for

proceedings consistent with REAOC II.”

Id.

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The Ninth Circuit noted that under REAOC II in order to

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survive a motion to dismiss, SCARE's complaint would have to

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"allege that the County: (1) entered into a contract that included

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implied terms providing healthcare benefits to retirees that

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vested for perpetuity; and (2) created that contract by ordinance

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or resolution."

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1176).

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attached MOUs met the first requirement, but that SCARE must also

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identify a resolution or ordinance that plausibly ratified the

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MOUs to fulfill the second prong of the REAOC II test.

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would be accomplished if the text of the resolutions or ordinances

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and the circumstances surrounding their passage "clearly evince"

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an intent to grant vested benefits or "contain [] an unambiguous

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element of exchange of consideration by a private party for

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consideration offered by the state."

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Id. at 1115-16 (citing REAOC II, 52 Cal. 4th at

The Court found that SCARE's amended complaint and the

Id.

This

Id.

SCARE filed its Second Amended Complaint (2AC) in May 2013.

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It attached twenty-six new resolutions and asserted that these

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resolutions -- along with the sixty-eight resolutions, ordinances,
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and MOUs attached to its previous complaint -- evinced the

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“County’s clear intent to bind itself to contracts with the

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Retirees to provide post-retirement healthcare benefits.”

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¶ 19.

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to state a claim and lack of subject matter jurisdiction.

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County argued, among other things, that because the newly added

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resolutions only adopted MOUs beginning in 1990, they could not

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support a contract claim for pre-1990 retirees or a tie agreement

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argument based on a 1985 agreement.

2AC

The County once again filed a motion to dismiss for failure
The

On January 10, 2014, the

United States District Court
For the Northern District of California

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Court granted the motion in part, dismissing all claims on behalf

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of non-union retirees and those hired before 1990.

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The Court found that while the newly added resolutions contain

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language expressly adopting the MOUs highlighted in the Ninth

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Circuit’s opinion, they only govern agreements between the County

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and local unions and only with respect to employees hired after

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1990.

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proceeding on any claims based on the alleged 1985 tie agreement,

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reasoning that SCARE had failed to identify a specific ordinance

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or resolution creating that contract.

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Id.

Docket No. 96.

In addition, the Court precluded Plaintiff from

Id.

Plaintiff now moves for reconsideration of the dismissal of

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claims on behalf of retirees hired before 1990 who worked under

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post-1989 MOUs.

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scope of its ruling dismissing all claims based on the 1985 tie

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agreement.

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SCARE also requests that the Court clarify the

LEGAL STANDARD

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Where a court's ruling has not resulted in a final judgment

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or order, reconsideration of the ruling may be sought under Rule

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54(b) of the Federal Rules of Civil Procedure.
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Courts have

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typically considered motions for reconsideration under Rule 54(b)

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in light of the standards for reconsideration under Rules 59(3)

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and 60(b).

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(N.D. Cal.).

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court (1) is presented with newly discovered evidence,

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(2) committed clear error or the initial decision was manifestly

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unjust, or (3) if there is an intervening change in controlling

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law."

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F.3d 1255, 1263 (9th Cir. 1993).

See, e.g., Awala v. Roberts, 2007 WL 1655823, at *1
"Reconsideration is appropriate if the district

Sch. Dist. No. 1J, Multnomah Cnty., Or. v. ACandS, Inc., 5
Motions for reconsideration

United States District Court
For the Northern District of California

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should only be granted in extraordinary circumstances.

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Twentieth Century–Fox Film Corp. v. Dunnahoo, 637 F.2d 1338, 1341

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(9th Cir. 1981).

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See,

DISCUSSION
SCARE's motion addresses two aspects of this Court's January

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10 order.

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claims brought on behalf of retirees hired before 1990 who worked

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under post-1989 MOUs.

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warranted because (1) the Court incorrectly interpreted Sonoma III

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and the text of the MOUs in determining which retirees had a right

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to healthcare benefits, and (2) new evidence supports SCARE's

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contention that the MOUs apply to retirees hired before 1990 who

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worked under post-1989 MOUs.

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the portion of the order dismissing claims based on an alleged

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1985 tie agreement.

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retiree benefits are tied to the benefits of active employees,

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then SCARE seeks leave to move for reconsideration of that point.

First, SCARE seeks reconsideration of the dismissal of

SCARE argues that reconsideration is

Second, SCARE seeks clarification of

If the order prohibits the argument that

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I. Dismissal of Claims Pertaining to Pre-1990 Hires
SCARE first asks the Court to reconsider the dismissal of its

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claims brought on behalf of retirees hired before 1990 who worked

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under post-1989 MOUs.

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were agreed upon in 1989 and went into effect in 1990.

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Ex. 38, Docket No. 76.

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restrictions on retiree healthcare benefits for employees hired

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from that day forth.

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the MOUs impose a promise to pay retiree healthcare benefits only

The earliest MOUs enacted by resolution
See 2AC,

In 1990, the County imposed new

The issue upon reconsideration is whether

United States District Court
For the Northern District of California

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for post-1990 hires or for pre-1990 hires as well.

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the Sonoma III test, the MOUs only need to include "plausibly"

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implied terms providing healthcare benefits to retirees hired

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before 1990.

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Pursuant to

SCARE contends that the Court incorrectly relied on the Ninth

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Circuit’s decision in Sonoma III in making its determination.

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January 10 order found that the Ninth Circuit "expressly

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recognized" that only employees hired after 1990 plausibly have a

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contractual right to retiree healthcare benefits.

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at 18.

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retirees hired after 1990 as an example of how the MOUs submitted

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supported the Association's allegation that the MOUs promised

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healthcare benefits.

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test, the Ninth Circuit noted that the MOUs attached to the 2AC

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"state, among other things, that the County will make

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contributions toward a health plan premium for retirees hired

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after 1990 who had worked for the county. . . "

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F.3d at 1116.

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mean that the MOUs only covered retirees hired after 1990;

The

Docket No. 96

However, SCARE maintains that Sonoma III only referred to

In applying the first prong of the REAOC II

Sonoma III, 708

The January 10 order interpreted this language to

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however, the inclusion of the phrase "among other things" suggests

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that the Ninth Circuit did not intend to provide a comprehensive

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account of all retirees guaranteed healthcare benefits under the

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MOUs.

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Id.
SCARE notes that there is no other point in Sonoma III where

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the Ninth Circuit stated that SCARE had not set forth a claim on

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behalf of pre-1990 hires.

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language later in the opinion that suggests that pre-1990 hires

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are entitled to the same retiree medical benefits as post-1990

In fact, the Ninth Circuit cited MOU

United States District Court
For the Northern District of California

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hires.

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the County will provide post-1990 hires with benefits "in the same

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manner and on the same basis as is done at the time for other

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retirees who were hired or rehired before July 1, 1990.").

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also notes that neither party distinguished between pre- and post-

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1990 hires in their briefs.

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opinion, this Court agrees that Sonoma III does not foreclose a

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plausible claim for pre-1990 hires who worked under the 1989 MOUs.

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See id. at 1116 n.3 (citing MOU language providing that

SCARE

After reviewing the Ninth Circuit

SCARE provides further support for its contention that the

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MOUs govern the rights of employees hired before and after 1990.

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SCARE explains that the distinction between pre- and post-1990

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hires found in the MOUs is only for the purpose of setting new

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restrictions on eligibility for post-1990 hires.

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submitted new testimony and documentary evidence to support this

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point.

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produced over 500,000 pages of discovery documents, which, SCARE

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contends, demonstrate the bargaining parties' intent to provide

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pre-1990 hires, after retirement, with medical benefits at least

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as favorable as post-1990 hires.

SCARE has also

Since the Court's January 10 order, the County has

In addition, the parties have
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taken the depositions of fifteen witnesses since the January 10

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order, in which witnesses testified that the MOUs were not

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intended to preclude pre-1990 hires from retiree medical benefits.

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In fact, multiple witnesses stated that the intent was to make

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eligibility requirements more stringent for post-1990 hires.

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new evidence submitted in SCARE's motion for reconsideration sheds

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further light on the MOUs and resolutions attached to the 2AC.

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The

There are two ways in which the MOUs and resolutions attached
to the 2AC discuss retirees hired before 1990.

In the first

United States District Court
For the Northern District of California

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subset, MOUs refer to the County's current practice of providing

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retiree healthcare benefits for pre-1990 hires.

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Sonoma County Law Enforcement Managers Association 2003-09 MOU

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provides, "Currently, the County contributes to the cost of a

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health plan for its retirees and their dependents."

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The MOU discusses the 1990 hire date only as a point when new

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eligibility restrictions were put in place.

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For example, the

Ex. 29 at 33.

Id.

The second way in which pre-1990 hires are addressed in the

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MOUs and resolutions is in reference to the coverage of post-1990

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hires.

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employees hired or rehired after January 1, 1990 be entitled to

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receive greater contributions from the County for a health plan

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upon retirement than the County pays for employees hired or

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rehired before January 1, 1990 upon their retirement."

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2AC Ex. 38 at 65, Docket No. 76.

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language reflects an intent to limit the benefits of post-1990

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hires, not to grant them greater benefits than those hired before

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that date.

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link benefits for post-1990 hires to those of pre-1990 hires

For example, one MOU provides, "In no event shall

See, e.g.,

SCARE contends that this

Furthermore, SCARE argues that these MOUs explicitly

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suggesting that both types of retirees are entitled to the same

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benefits.

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any employee newly hired or rehired by the County . . . the County

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shall contribute for the retiree only the same amount towards a

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health plan premium as it contributes to an active single employee

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in the same manner and on the same basis as is done at the time

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for other retirees who were hired or rehired before January 1,

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1990.")(emphasis omitted).

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explicit mandatory language committing the County to provide

See 1AC Ex. 4 Salary Ordinance No. 1905, ¶ 15.4 ("For

While none of the MOUs include

United States District Court
For the Northern District of California

10

healthcare benefits for retirees hired before 1990, the decision

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to include the practice in MOUs ratified by resolution and to link

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the benefits of retirees hired post-1990 to those of retirees

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hired before 1990 supports that SCARE sufficiently alleges that

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the County intended to promise healthcare benefits for retirees

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hired before 1990.

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The new evidence further supports SCARE's contention that the

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MOUs created a promise on behalf of the County to continue its

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practice of paying retiree healthcare benefits for pre-1990 hires.

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For example, Ray Myers, who was employee relations manager for the

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County, testified that the 1989 MOU with the Service Employees

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International Union represented "a commitment forward by the

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county with regard to current employees and retirees."

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Dep. 103:1-6.

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changes to retiree healthcare benefits for new hires because it

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considered benefits to have vested from day one of employment.

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Id. at 289:22-25, 290:5-22.

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that the County did intend for the 1989 MOUs to confer rights to

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healthcare benefits on current employees and supports SCARE's

Ray Myers

Mr. Myers also testified that the County only made

This deposition testimony suggests

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contention that it has stated a plausible claim with respect to

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pre-1990 hires.

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Taking into account the MOUs attached to the 2AC and the new

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evidence attached to SCARE's motion for reconsideration, the Court

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finds that SCARE has plausibly stated a claim with respect to pre-

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1990 hires who worked under post-1989 MOUs.

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motion for reconsideration is GRANTED.

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hereby vacated and the Court will enter an amended order

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permitting SCARE to proceed with its claims on behalf of pre-1990

United States District Court
For the Northern District of California

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II.

The January 10 order is

hires who worked under post-1989 MOUs.

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Accordingly, SCARE's

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Clarification Regarding the Tie Agreement
SCARE also requests clarification on the scope of the January

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10 order with respect to the alleged 1985 tie agreement.

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Specifically, SCARE questions whether the order precludes claims

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demonstrating any tie agreement or only the 1985 tie agreement.

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If the order precludes SCARE from arguing the existence of any tie

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agreement, it requests leave to file a motion for reconsideration

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on that point.

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The 2AC alleges that in or around 1985 the County agreed to

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link retirees to the active administration management employee

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group for the purposes of health benefits.

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agreement as the "tie agreement" because it ties retiree

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healthcare benefits to those of active employees.

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number of resolutions and MOUs in which the text explicitly ties

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retiree healthcare benefits to those of active employees.

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e.g., Salary Resolution No. 95-0926, 2AC, Ex. 7 (" . . . the

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County shall contribute for the retiree only the same amount

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towards a health plan premium as it contributes to an active
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SCARE refers to this

The 2AC cites a

See,

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single employee in the same manner and on the same basis as is

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done at the time for other retirees who were hired or rehired

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before January 1, 1990.").

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In seeking to proceed with its tie agreement claim, SCARE now

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clarifies that its claim is not based solely on the 1985

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agreement, for which there is no specific corresponding MOU.

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Rather, its claim relies on the subsequent MOUs ratified by

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resolutions that explicitly refer to the tying of retiree

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healthcare benefits to those of active employees.

United States District Court
For the Northern District of California

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The January 10 order dismissed SCARE's theory of contract

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formation based on an "alleged 1985 tie agreement," because SCARE

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failed to attach to its 2AC a resolution enacted prior to 1990.

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Docket No. 19.

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proceeding on a tie agreement claim that is based on promises

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implied in the post-1989 MOUs enacted by resolution.

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This limitation does not preclude SCARE from

The County argues that SCARE is judicially estopped from

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claiming that post-1989 MOUs and resolutions adopting them

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constitute the source of the alleged tie agreement.

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close reading of the 2AC makes clear that SCARE did not base its

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tie agreement claim solely on the alleged 1985 agreement.

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states that the "promise to pay Retirees' health care benefits

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under the tie agreement was an explicit term of some of the

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contracts . . . and an implied term of the remainder."

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Insofar as those terms are alleged to be part of a contract

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enacted by resolution, SCARE may proceed with its tie agreement

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claims.

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However, a

The 2AC

2AC ¶ 30.

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CONCLUSION
For the reasons set forth above, the Court GRANTS Plaintiff's

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motion for reconsideration and clarification (Docket No. 142).

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The Court hereby vacates its January 10 order (Docket No. 96)

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and will enter an amended order.

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SCARE may proceed with its claims on behalf of pre-1990 retirees

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who worked under the post-1989 MOUs.

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that it has not dismissed SCARE’s tie agreement theory except

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insofar as it relies only on an alleged 1985 agreement.

Pursuant to the amended order,

The Court also clarifies

United States District Court
For the Northern District of California

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IT IS SO ORDERED.

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Dated: 04/22/2015
CLAUDIA WILKEN
United States District Judge

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