Harris v. Cnty. of Orange

17 F.4th 849

Gaylan HARRIS, on behalf of himself and others similarly situated, Plaintiff-Appellant,

v.COUNTY OF ORANGE, Defendant-Appellee.

No. 19-56387

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 18, 2020

Filed October 28, 2021

Michael P. Brown (argued), Gordon Tilden Thomas Cordell LLP, Seattle, Washington, for Plaintiff-Appellant.

Arthur A. Hartinger (argued), Ian T. Long, and Ryan McGinley-Stempel, Renne Public Law Group, San Francisco, California, for Defendant-Appellee.

Michael A. Conger, Law Office of Michael A. Conger, Rancho Santa Fe, California, for Amicus Curiae California Retired County Employees Association.

Before: Johnnie B. Rawlinson and Danielle J. Forrest, Circuit Judges, and Morrison C. England, Jr.,^* District Judge.

RAWLINSON, Circuit Judge

Pasadena, California Appellants-Plaintiffs Gaylan Harris, Jerry Jahn, and James McConnell seek to reverse the district court's order granting summary judgment in favor of Appellee-Defendant Orange County on their claim that the County breached its contractual obligations to retired County employees, and deprived them of vested health benefits, by restructuring the method through which the County assisted retired employees in defraying the cost of their health insurance. Because Plaintiffs failed to raise a material issue of fact regarding the County's intent to create an implied vested right to the grant provided by the County to defray the cost of health insurance, we affirm.

I. BACKGROUND

In 1966, the County began offering group medical insurance to its retired employees, separate from that offered to its active employees. County retirees received a monthly grant to cover a small portion of the premiums, but this program was discontinued in 1978. In 1985, the County combined active and retired employees into a single unified pool, which effectively established a health insurance subsidy for retirees by lowering their premiums while raising active employee premiums (Retiree Premium Subsidy). From 1993 through 2007, retired employees also received a monthly grant (the Grant Benefit) to defray the cost of health care premiums.

On January 5, 1993, the County and the Orange County Employee Retirement System (OCERS) entered into a Memorandum of Understanding (MOU) to allow the County to access $125,844,140.00 in surplus investment earnings controlled by the OCERS. The remaining $50,387,937.00 was deposited into an Additional Retirement Benefit Account (ARBA), exclusively for "paying towards health insurance for present and future retirees of the County." This MOU, referred to as the ARBA Agreement, required at least three labor unions to agree to enter into a retiree medical plan before the agreement would take effect.

On April 6, 1993, the County adopted the Retiree Medical Plan by resolution of the County Board of Supervisors. In order for an employee to be eligible for benefits under the Retiree Medical Plan, the employee's union was required to enter into an MOU with the County providing for coverage of the employee's work unit. In addition, the Retiree Medical Plan explicitly provided that the "Plan does not create any vested rights to the benefits provided hereunder on the part of any Employee, Retiree or any other person." The County's intent in approving the Grant Benefit was to induce employees to retire early, thereby reducing the County's workforce. The Retiree Medical Plan was funded by a mandatory contribution from active employees of 1% of their gross monthly wages, as well as investment earnings from the ARBA account. Active Employees also received a 1% increase in salary, which covered their required contribution In addition, any employee who left County employment before becoming eligible for a Grant Benefit would receive a lump sum cash rebate of his 1% salary contribution. Contemporaneous with or after adoption of the Retiree Medical Plan, all of the unions entered into MOUs with the County providing that the "County shall administer a Retiree Medical Insurance Grant Plan" and retirees "shall receive a Retiree Medical Insurance Grant."

Beginning in 2004, the County negotiated with its labor unions to restructure the retiree medical program, which was underfunded. Ultimately, the County approved an agreement with the labor unions that reduced benefits for retirees. Retirees maintain that the County's decision to reduce the Grant Benefit increased their health care costs significantly.

Plaintiffs filed a class action complaint on behalf of County retirees alleging that the County breached its contractual obligations to retirees by reducing the Grant Benefit. See Harris v. Cty. of Orange , 902 F.3d 1061, 1064–65 (9th Cir. 2018) (referred to by the parties as "Harris IV" ). "In 2011, the district court granted the County's motion for judgment on the pleadings," and we reversed and remanded. Id. at 1065 (discussing Harris v. Cty. of Orange (Harris I) , 682 F.3d 1126, 1134 (9th Cir. 2012) ). On remand, Plaintiffs filed a Second Amended Complaint, and the district court granted the County's motion to dismiss. See Harris IV , 902 F.3d at 1065. Plaintiffs filed a Third Amended Complaint, again alleging that the County breached its contractual obligations to Retirees by reducing the Grant Benefit. The district court dismissed the Third Amended Complaint with prejudice. Id. at 1066. Plaintiffs timely appealed and we reversed the district court "insofar as it dismissed [Plaintiffs' implied] contract claims regarding the Grant Benefit."¹ Id. at 1066–67, 1076.

The County subsequently moved for summary judgment on Plaintiffs' breach of contract claim. The district court granted the County's motion on the basis that Plaintiffs failed to raise a material issue of fact regarding the County's intent to create an implied vested right to the Grant Benefit. Plaintiffs filed a timely appeal of the district court's judgment and we exercise our jurisdiction pursuant to 28 U.S.C. § 1291.

II. STANDARD OF REVIEW

When reviewing the grant of summary judgment, we review "the evidence in the light most favorable to [Plaintiffs] as the nonmoving part[ies]" and "review de novo whether any genuine issue of material fact exists and whether the district court correctly applied the relevant substantive law." Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange (REAOC V) , 742 F.3d 1137, 1141–42 (9th Cir. 2014) (citation omitted).

III. DISCUSSION

Plaintiffs argue that because the 1993 MOUs demonstrated an intent by the County to create an implied vested right to the Grant Benefit, the County breached the MOUs by reducing the Grant Benefit. In Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange (REAOC III) , 52 Cal. 4th 1171, 1194, 134 Cal.Rptr.3d 779, 266 P.3d 287 (2011), the California Supreme Court, in response to our certified question, concluded that "[u]nder California law, contractual rights may be implied from legislative enactments under limited circumstances." The Court explained, however, that a plaintiff bears a "heavy burden" to overcome the presumption that the legislature did not intend to create vested rights. Id. at 1185, 1190, 134 Cal.Rptr.3d 779, 266 P.3d 287 (citations omitted). Evidence of a vested right implied by ordinance or resolution must be "unmistakable" and creation of such a right will only be found "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." Id. at 1187, 134 Cal.Rptr.3d 779, 266 P.3d 287 (citation, alterations and internal quotation marks omitted). Importantly, "the law does not recognize implied contract terms that are at variance with the terms of the contract as expressly agreed or as prescribed by statute " or law. Id. at 1181, 134 Cal.Rptr.3d 779, 266 P.3d 287 (emphasis added) citing Shoemaker v. Myers , 52 Cal. 3d 1, 23–24, 276 Cal.Rptr. 303, 801 P.2d 1054 (1990) (holding that "no employee has a vested contractual right ... beyond the time or contrary to the terms and conditions fixed by law") (other citation omitted); see also Miller v. State of California , 18 Cal. 3d 808, 813, 135 Cal.Rptr. 386, 557 P.2d 970 (1977) (in bank) (same).

Plaintiffs' claim to an implied vested right to the Grant Benefit is foreclosed because the prescribed law of Orange County is at variance with such a right. On April 6, 1993, the County adopted the Retiree Medical Plan by resolution of the County Board of Supervisors. See REAOC III , 52 Cal. 4th at 1184, 134 Cal.Rptr.3d 779, 266 P.3d 287 (explaining that, under Cal. Gov't Code 25300, the "appointment and conditions of employment of county employees" may be fixed "by resolution"). Section 1.3 of the Retiree Medical Plan states: "This Plan does not create any vested right to the benefits provided hereunder on the part of any Employee, Retiree or any other person." This section also states: "As provided by Sections [5.4 and 5.5],² this Plan may be amended or terminated at any time, in full or in part, by the County in its sole discretion." Sections 5.4 and 5.5 subject that discretion "to the terms of any Memorandum of Understanding with an Employee Organization."

As the governing law of Orange County prohibited Grant Benefits from vesting, Plaintiffs' claim of an implied vested right to those benefits is unavailing. Plaintiffs argue, however, that such a result is inconsistent with our prior decision in Harris IV. In Harris IV , however, we credited as true Plaintiffs' allegation in their complaint that "there is no indication that [Retiree Medical Plan's] contents were ever discussed with or disclosed to the unions during the negotiations that led to the adoption of those agreements," 902 F.3d at 1069 n.5, which would necessarily mean that there was also no allegation in the complaint that the Retiree Medical Plan was adopted by County resolution and had therefore become applicable law. See Pilimai v. Farmers Ins....