Marzec v. Public Employees' Retirement System

Filed 5/8/15

CERTIFIED FOR PARTIAL PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

ROBERT MARZEC et al. B246667 (consolidated with B246671)

Plaintiffs and Appellants, (Los Angeles County

Super. Ct. Nos. BC461887, BC480695)

v.

CALIFORNIA PUBLIC EMPLOYEES

RETIREMENT SYSTEM et al.,

Defendants and Respondents.

APPEALS from judgments of the Superior Court of Los Angeles County,

Anthony Mohr, Judge. Affirmed in part and reversed in part.

Law Offices of John Michael Jensen and John Michael Jensen, for Plaintiff and

Appellant.

Steptoe & Johnson LLP, Edward Gregory and Jason Levin, for Defendants and

Respondents.

_________________________



Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is

certified for partial publication. The portions of this opinion to be deleted from

publication are those portions enclosed within double brackets, [[ ]].

These consolidated appeals concern the calculation of retirement benefits under

the Public Employees’ Retirement Law (PERL), Government Code section 20000 et seq.1

The plaintiffs are former police officers and firefighters employed by local public

agencies that provide employee retirement benefits through the California Public

Employees’ Retirement System (CalPERS). In order to enhance their service retirement

benefits, plaintiffs purchased additional years of service credit through one of several

optional programs offered by CalPERS. Subsequently, each plaintiff was disabled on the

job and took an industrial disability retirement before reaching service retirement age. As

a result, CalPERS pays each plaintiff a monthly disability retirement allowance of

50 percent of his or her final compensation. CalPERS does not, however, pay plaintiffs

any additional allowance as a result of their purchase of additional years of service credit.

This appeal involves two putative class actions in which plaintiffs contend that

their purchase of additional service credit entitled them to enhanced retirement benefits

under the PERL. They alleged CalPERS’s failure to pay such enhanced benefits gave

rise to a variety of causes of action, including breach of statutory duty, breach of contract,

rescission, breach of fiduciary duty, and constitutional claims.2 In the first action, the

trial court sustained CalPERS’s demurrer to all causes of action without leave to amend,

concluding that plaintiffs had not properly pled an entitlement to the additional retirement

benefits they claimed as a matter of statutory, constitutional, or contract law. As to the

second action, the trial court granted judgment on the pleadings on the same bases.3

1

All subsequent undesignated statutory references are to the Government Code.

2

The two complaints at issue in this appeal assert the same 12 causes of action and

are pled in virtually identical language. Thus, although this appeal addresses two

different complaints, for ease of reference we refer throughout this opinion to the

“complaint” in the singular. Where we quote from a complaint, the quoted language is

from the Marzec complaint.

3

For ease of reference, we refer collectively to CalPERS’s demurrer in the first

action and its motion for judgment on the pleadings in the second action as “the

demurrer.”

2

We affirm in part. As we discuss, neither the PERL nor plaintiffs’ contracts entitle

plaintiffs to the additional retirement benefits they seek, and thus the causes of action for

breach of statutory duty and breach of contract fail as a matter of law. Plaintiffs’ causes

of action for constitutional torts also fail because, as a matter of law, CalPERS’s

interpretation of the applicable statutory provisions does not deny plaintiffs due process

or equal protection of law and does not effect an unconstitutional impairment of contract.

We reverse, however, as to the causes of action for rescission and breach of

fiduciary duty. Plaintiffs allege that CalPERS failed to disclose the potential loss of the

value of purchased service credit if plaintiffs suffered a disability—a disclosure that

CalPERS, as a fiduciary, is alleged to have been required to make. We conclude that

plaintiffs’ pleading in this regard is sufficient to survive demurrer, and thus the demurrer

should have been overruled as to these causes of action.

FACTUAL AND PROCEDURAL BACKGROUND

I.

Background

A. CalPERS Retirement Benefits

CalPERS is a unit of the Government Operations Agency responsible for

administering the retirement systems for the State of California and “contracting

agencies”—local public agencies that have “elected to have all or part of [their]

employees become members of this system and that ha[ve] contracted with [CalPERS]

for that purpose.” (§§ 20001, 20002, 20004, 20022, 20028.) All of the plaintiffs in this

action worked as police officers or firefighters for local public agencies that enrolled their

employees in CalPERS. (§ 20420.)

The PERL authorizes retirement benefits to CalPERS members. As relevant here,

the PERL provides safety members employed by local public agencies (“local safety

members”) with two distinct kinds of retirement benefits:

(1) Service retirement benefit: If a member retires at or after age 50, the

member is eligible for a service pension to “equal 3 percent of his or her final

compensation at retirement, multiplied by the number of years of patrol service or local

3

safety service subject to this section with which he or she is credited at retirement.”

(§ 21362.2.)

(2) Industrial disability retirement benefit: If a member retires before age 50

because of an industrial (job-related) disability, he or she “shall receive a disability

retirement allowance of 50 percent of his or her final compensation.” (§ 21413.)4

Alternatively, the disabled member may “waive[] the right to retire for disability and

elect[] to withdraw contributions or to permit contributions to remain in the fund . . . .”

(§ 21153.)

B. Right to Purchase Additional Service Credit

At all relevant times, CalPERS members who had served with the United States

Armed Forces were permitted to receive credit for such service “in addition to his or her

current and prior service credit” by “contribut[ing] in a lump sum or by installment

payments . . . an amount equal to . . . the contributions he or she would have made to this

system for the period for which current service credit is granted.” (§ 21032; see also

§§ 21020, 21024, 21033.) Such purchased service credit is referred to as “military

service credit” (MSC).

Between 2003 and 2012, CalPERS members with at least five years of credited

state service were permitted “to make contributions . . . and receive not less than one

year, nor more than five years, in one-year increments, of additional retirement service

credit in the retirement system.” (§ 20909, subd. (a).) To receive such credit, members

were required to contribute “an amount equal to the increase in employer liability, using

the payrate and other factors affecting liability on the date of the request for costing of the

service credit.” (§ 21052.) This purchased service credit is referred to as “additional

retirement service credit” (ARSC) or “airtime.”

4

Under section 21413, a member who retires for industrial disability after age 50

(i.e., at an age at which the member qualifies for service retirement) receives either a 50

percent disability retirement allowance or his or her service retirement allowance,

whichever is greater. Because all plaintiffs retired before age 50, they were not eligible

for service retirement benefits.

4

C. Plaintiffs’ Purchases of Additional Service Credit and Subsequent

Industrial Disability Retirements

Each of the plaintiffs purchased additional service credit and subsequently took

industrial disability retirement before age 50, as follows:

Plaintiff Robert Marzec worked as a police officer for the Stockton Police

Department for approximately 17 years. In 2004, he elected to purchase four years of

military service credit based on his previous service with the United States Marines by

making a lump sum payment of $23,709. In August 2010, after suffering a job-related

injury, Marzec took an industrial disability retirement and began receiving industrial

retirement benefits of 50 percent of his final compensation.

Plaintiff Rachel Healy worked as a police officer for the Stockton Police

Department for approximately nine years. In 2005, she elected to purchase five years of

ARSC by making a lump sum payment of $31,360, and rolling over an additional

$46,000 from a deferred compensation account. After she suffered a job-related injury,

Healy took an industrial retirement effective September 2009 and began receiving

industrial retirement benefits of 50 percent of her final compensation.

Plaintiff Benjamin Esparza worked as a firefighter for the City of Monrovia Fire

Department for approximately 25 years. In 2005, he elected to purchase five years of

ARSC by rolling over $76,436 from his deferred compensation plan. He was injured on

the job and took an industrial disability retirement in August 2009. At that time, he

began receiving industrial retirement benefits of 50 percent of his final compensation.

Plaintiff Jeffrey Andert worked as a police officer for the City of Alhambra Police

Department for six years. In 2004, he elected to purchase four years of military service

credit through bi-weekly installment payments of $269.90, for a total of $77,190 in

principal and interest. Andert was injured on the job in 2006, and in 2007 he asked for,

and received, permission to suspend his installment payments. Andert took an industrial

disability retirement in May 2008 and began receiving industrial retirement benefits of 50

percent of his final compensation. In August 2008, he permanently suspended all further

installment payments.

5

Plaintiff Neil MacLaren was a firefighter for the Roseville Fire Department for

more than 21 years. In 2005, MacLaren elected to purchase two years of ARSC by

rolling over $29,977 from his retirement account. MacLaren was injured on the job and

took an industrial disability retirement in 2009, at which time he began receiving

industrial disability benefits of 50 percent of his final compensation.

Plaintiff Randy Slaughter was a police officer for the City of Newport Beach

Police Department for approximately 17 years. In 2001, Slaughter elected to purchase

four years of military service credit by making monthly installment payments of $6,977

and a lump sum payment of $44,652. Slaughter took an industrial disability retirement in

2004, at which time he began receiving industrial retirement benefits of 50 percent of his

final compensation.

Because each of the plaintiffs retired before age 50, none received a service

retirement benefit, and none received any additional retirement benefits as a result of his

or her purchase of MSC or ARSC.

II.

The Present Actions

Marzec, Healy, and Esparza filed an action on May 18, 2011 (the Marzec action),

and filed the operative first amended class action complaint on February 28, 2012.

Andert, MacLaren, and Slaughter filed a similar class action complaint (the Andert

action) on March 12, 2012. Both actions asserted that plaintiffs were entitled, in addition

to their industrial disability retirement allowances (sometimes referred to as “IDR”), to

additional retirement benefits associated with their purchases of MSC or ARSC. The

actions asserted that neither the PERL nor plaintiffs’ purchase contracts authorized

CalPERS to “seize” plaintiffs’ MSC/ARSC investments as a condition of receiving

disability benefits, that CalPERS did not adequately advise plaintiffs of this risk of

seizure before they invested in MSC or ARSC, and that through its administration of

disability and MSC/ARSC benefits, CalPERS treated plaintiffs differently than other

similarly situated CalPERS members.

6

Plaintiffs allege that CalPERS’s failure to pay additional retirement benefits or to

return the MSC or ARSC investments gave rise to 12 causes of action: (1) breach of

statutory duties; (2) breach of contract; (3) rescission/ restitution; (4) breach of fiduciary

duties; (5) denial of equal protection; (6) denial of due process; (7) equitable relief;

(8) declaratory relief; (9) accounting; (10) constitutional impairment of contract;

(11) estoppel; and (12) other relief, including attorney fees.

III.

CalPERS’s Demurrer in the Marzec Action

CalPERS demurred to the first amended complaint in the Marzec action. In a

detailed written opinion, the trial court sustained the demurrer without leave to amend.

Although the court said that plaintiffs’ situation is “certainly sympathetic,” it concluded

that none of plaintiffs’ causes of action stated a claim for relief. The court entered a

judgment of dismissal, and plaintiffs timely appealed.

IV.

CalPERS’s Motion for Judgment on the Pleadings in the Andert Action

CalPERS filed a motion for judgment on the pleadings in the Andert action. The

motion asserted that plaintiffs’ claims were functionally identical to those in the Marzec

case, and therefore the court should grant judgment on the pleadings for the same reasons

it sustained the demurrer in Marzec.

The trial court granted the motion for judgment on the pleadings. Plaintiffs timely

appealed, and this court ordered the Marzec and Andert appeals consolidated.

STANDARD OF REVIEW

A demurrer is properly sustained “ ‘when the complaint fails to allege facts

sufficient to state a cause of action.’ ” (People ex rel. Harris v. PAC Anchor

Transportation, Inc. (2014) 59 Cal.4th 772, 777 (Harris); Rope v. Auto-Chlor System of

Washington, Inc. (2013) 220 Cal.App.4th 635, 644.) “ ‘All properly pleaded, material

facts are deemed true, but not contentions, deductions, or conclusions of fact or law. . . .’

[Citation.] Courts may consider judicially noticeable matters . . . as well. [Citation.]”

(Harris, supra, at p. 777.) “Because a motion for judgment on the pleadings is the

7

functional equivalent of a general demurrer, the same rules apply.” (Hightower v.

Farmers (1995) 38 Cal.App.4th 853, 858.)

“We review an order sustaining a demurrer de novo, exercising our independent

judgment as to whether a cause of action has been stated as a matter of law. (Moore v.

Regents of University of California (1990) 51 Cal.3d 120, 125.) Because a demurrer tests

only the legal sufficiency of the pleading, the facts alleged in the pleading are deemed to

be true. [Citation.] We do not review the validity of the trial court’s reasoning, and

therefore will affirm its ruling if it was correct on any theory. (Ibid.)” (Nasrawi v. Buck

Consultants LLC (2014) 231 Cal.App.4th 328, 337.)

DISCUSSION

I.

Breach of Statutory Duty (First Cause of Action)

A. Preliminary Matters: Plaintiffs’ Duty to Identify a Statutory Basis for

Their Claim and to Affirmatively Demonstrate Trial Court Error

Plaintiffs’ first cause of action is for breach of statutory duty. Plaintiffs urge that

CalPERS has violated California statutory law by “forc[ing] Plaintiffs to involuntarily

relinquish all or part of their investment in [MSC and ARSC] which the Plaintiffs

contributed for time or service outside their safety employment,” and they ask the court

to declare that CalPERS failed to pay them all the benefits to which they are entitled.

Plaintiffs further ask the court either to “[o]rder CalPERS to pay disabled Plaintiffs a

continuing [MSC or ARSC] benefit in addition to Plaintiffs’ disability allowance . . . in

an amount that provides Plaintiffs the full additional value that CalPERS is obligated to

pay under the relevant statutory provisions in the PERL,” or in the alternative, to order

CalPERS to refund to plaintiffs the sums they paid to purchase MSC or ARSC.

We note as a preliminary matter that although plaintiffs allege breach of a

statutory duty—and although the complaint and plaintiffs’ appellate briefs discuss myriad

provisions of the PERL—we have had some difficulty ascertaining the particular

provisions that plaintiffs believe CalPERS breached. That is, although plaintiffs assert

that they have a statutory entitlement either to an additional retirement benefit or to a

8

refund of the payments they made to purchase MSC or ARSC, they do not clearly

identify the provision (or provisions) they contend entitle them to such additional benefits

or to a refund.

Plaintiffs’ failure to identify clearly the statutory basis for their claim appears to be

an intentional choice, not an oversight. Plaintiffs urge that they have no duty to identify

the statute they believe CalPERS violated, and they suggest that the trial court “erred

when it placed the burden on [plaintiffs]” to “show statutory authority.” Instead,

plaintiffs say, the trial court “should have placed the burden on CalPERS to show

statutory authority” to support their claims.

Plaintiffs’ suggestion that they had no burden to identify the statutory provisions

they believe CalPERS violated is fundamentally in error. When a plaintiff pleads a

violation of a statutory duty by a public entity, “we think it obvious that a litigant seeking

to plead the breach of a mandatory duty must specifically allege the applicable statute or

regulation. Only by so doing may the public entity be advised of the factual and legal

basis of the claim against it.” (Lehto v. City of Oxnard (1985) 171 Cal.App.3d 285, 292-

293.) If a plaintiff fails to identify the provision of law allegedly violated by the

defendant, she “fail[s] to meet her burden of stating and substantiating a legally sufficient

claim of unlawfulness.” (Bernardo v. Planned Parenthood Federation of America

(2004) 115 Cal.App.4th 322, 352.)

For these reasons, it is not enough for plaintiffs to allege the breach of an inchoate

statutory duty; instead, they must identify the particular statutory provision they contend

CalPERS violated. Moreover, as the parties challenging the trial court’s determination, it

is the plaintiffs’ burden “to affirmatively demonstrate error.” (E.g., Consumer Advocacy

Group, Inc. v. Kintetsu Enterprises of America (2007) 150 Cal.App.4th 953, 982.) To do

so, plaintiffs must do more than draw our attention to asserted errors in the trial court’s

reasoning—they must affirmatively demonstrate that they have adequately stated a claim

for relief.

With the foregoing in mind, we now turn to the particular statutory section on

which plaintiffs’ cause of action for breach of statutory duty appears to be based.

9

B. The Relevant Statutory Language Does Not Support Plaintiffs’

Interpretation of It

Although plaintiffs discuss many provisions of the PERL, they identify only one

that they contend requires CalPERS to provide them an ARSC or MSC benefit in

addition to their disability allowances. That provision is section 21420, which states as

follows:

“If a member retired for industrial disability has made contributions in respect to

service rendered in a category of membership other than the category in which he or she

was at the time he or she suffered the disability or incurred the disease causing his or her

retirement for industrial disability, in addition to the disability retirement allowance to

which he or she is otherwise entitled under this article, he or she shall receive an annuity

purchased with his or her accumulated normal contributions made in respect to service

rendered in the other category of membership.” (Italics added.)

Plaintiffs contend that their purchases of MSC and ARSC were “normal

contributions made in respect to service rendered in [another] category of membership”

within the meaning of section 21420. Plaintiffs thus urge that, in addition to their

disability benefits, they are entitled to annuities purchased with the sums they contributed

to purchase MSC and ARSC. They say: “Since military/airtime deposits are made with

respect to service prior to and outside the safety job where injured, Section 21420 must

(1) exclude military/airtime contributions from funding the IDR under 21418, and

(2) provide appellants an additional annuity based on their military/airtime investment.”

CalPERS disagrees. It contends that “normal contributions made in respect to

service rendered in [another] category of membership” refers to contributions made while

employed by a different CalPERS entity or in a different CalPERS classification, not to

contributions made in connection with non-CalPERS employment. Thus, it urges,

plaintiffs are not entitled under section 21420 to annuities purchased with MSC or ARSC

payments. We consider these issues below.

10

1. The Statutory Language

We begin by considering the language of section 21420. “ ‘Under well-

established rules of statutory construction, we must ascertain the intent of the drafters so

as to effectuate the purpose of the law. (Preston v. State Bd. of Equalization (2001)

25 Cal.4th 197, 213.) Because the statutory language is generally the most reliable

indicator of legislative intent, we first examine the words themselves, giving them their

usual and ordinary meaning and construing them in context. (People v. Lawrence (2000)

24 Cal.4th 219, 230.) When statutory language is clear and unambiguous, “ ‘there is no

need for construction and courts should not indulge in it.’ ” (People v. Benson (1998)

18 Cal.4th 24, 30, quoting People v. Overstreet (1986) 42 Cal.3d 891, 895.)’ (Esberg v.

Union Oil Co. (2002) 28 Cal.4th 262, 268.) [Footnote omitted.]” (Bernard v. City of

Oakland (2012) 202 Cal.App.4th 1553, 1560-1561.) The interpretation of a statute

presents a question of law, which we review de novo. (Burien, LLC v. Wiley (2014)

230 Cal.App.4th 1039, 1043; Apartment Assn. of Los Angeles County, Inc. v. City of Los

Angeles (2009) 173 Cal.App.4th 13, 21.) Further, although pension legislation is to be

construed liberally, “this rule ‘should not blindly be followed so as to eradicate the clear

language and purpose of the statute and allow eligibility for those for whom it was

obviously not intended.’ (Neeley v. Board of Retirement (1974) 36 Cal.App.3d 815,

822.)” (City of Oakland v. Public Employees’ Retirement System (2002) 95 Cal.App.4th

29, 39.)

As we have said, section 21420 provides that a disability retiree is entitled to an

annuity (in addition to a disability allowance) if he or she has made contributions in

respect to service rendered in a “category of membership” other than the category in

which he or she was serving when he or she became disabled. Because the statute thus

premises the right to an annuity on a member’s service in more than one “category of

membership,” the meaning of this phrase is central to our analysis.

The phrase “category of membership” appears throughout the PERL, but the

PERL does not define it. The statute does, however, define “member”—“ ‘Member’

means an employee who has qualified for membership in this system and on whose

11

behalf an employer has become obligated to pay contributions.” (§ 20370, subd. (a),

italics added.)

The statute also defines “member classification”: “ ‘Member classification’

means either of the following: [¶] (a) Miscellaneous member classification, which

includes state miscellaneous members, National Guard members, university members,

local miscellaneous members, state industrial members, and school members[, or] [¶]

(b) Safety member classification, which includes patrol members, state peace

officer/firefighter members, state safety members, and local safety members.” (§ 20371.)

Subsequent sections of the PERL appear to refer to these classifications as “categor[ies]

of membership” and “membership categor[ies].”5

Taken together, these sections suggest that a “category of membership” means a

job category or classification that has two essential attributes—it (1) qualifies the

5

For example, sections 19816.20, subdivision (a) [“The department shall determine

which classes or positions meet the elements of the criteria for the state safety category of

membership in the Public Employees’ Retirement System,” italics added], 20046

[“ ‘Industrial,’ in reference to the death or disability of any member of this system who is

in a membership category under which special benefits are provided by this part because

the death or disability is industrial, means disability or death as a result of injury or

disease arising out of and in the course of his or her employment as such a member,”

italics added], 20036 [“In the computation of the disability retirement allowance payable

upon the retirement of a member for industrial disability, final compensation shall be

determined only with respect to compensation earnable in the membership category

applicable to the member at the time of the injury or the onset of the disease causing the

disability,” italics added], 20820 [“Notwithstanding Section 20816, surplus funds

credited to the patrol member category shall be used to reduce the state employer

contribution to this system,” italics added], 21353 [“The combined current and prior

service pensions for a local miscellaneous member, a school member, a state

miscellaneous or state industrial member, or a university member is a pension . . .

sufficient, when added to the service retirement annuity . . . to equal the fraction of one-

fiftieth of the member’s final compensation set forth opposite the member’s age at

retirement, taken to the preceding completed quarter year, in the following table,

multiplied by the number of years of current and prior service except service in a

category of membership other than that of state or state industrial member, local

miscellaneous member, school member, or a university member, or service covered under

this First Tier retirement formula, with which the member is entitled to be credited at

retirement,” italics added].

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individual for membership in the CalPERS system, and (2) obligates an employer to pay

contributions on the individual’s behalf. (§ 20370.) These sections also suggest that

“categories of membership” are those specifically described by the statute—i.e., “state

miscellaneous members,” “National Guard members,” “university members,” “local

miscellaneous members,” “state industrial members,” “school members,” “patrol

members,” “state peace officer/firefighter members,” “state safety members,” and “local

safety members.”

ARSC and MSC do not fall into any of the enumerated statutory categories and do

not have either attribute of membership. As we have described, ARSC is a benefit that

was offered to some individuals who were already members of CalPERS, not a means by

which individuals could qualify for CalPERS membership. (§ 20909, subds. (a) & (e)(1)

[option to purchase ARSC applies only to “members” who are “employed in state

service” at the time of the ARSC election], (d) [ARSC “may not be counted to meet the

minimum qualifications for service or disability retirement or for health care benefits, or

any other benefits based upon years of service credited to the member”].) Moreover, an

employee’s purchase of ARSC did not obligate an employer to make CalPERS

contributions on the employee’s behalf. To the contrary, section 21052 provides that if

an employee elects to purchase ARSC, it is the employee, not the employer, who is

required to contribute “an amount equal to the increase in employer liability.” (§ 21052.)

ARSC, therefore, is not a “category of membership” because it neither qualified an

individual for membership in CalPERS nor obligated an employer to make any

contributions on that individual’s behalf.

The same is true of MSC. Nothing in the PERL suggests that service in the United

States military entitles an individual to CalPERS membership—to the contrary, the

statute is clear it is the individual’s subsequent employment with the State of California

or a contracting local public agency that creates the right to such membership.

(§§ 21024, 21032.) Thus, although sections 21024 and 21032 permit members to

purchase additional service credit based on prior military service, it is the employment by

a state or local agency—not the military service—that entitles the individual to CalPERS

13

membership. And, as with ARSC, it is the employee, not the employer, who must

contribute “an amount equal to the increase in employer liability.” (§ 21052.) MSC,

therefore, likewise cannot be a “category of membership” because it neither qualifies an

individual for membership in CalPERS nor obligates an employer to make any

contributions on that individual’s behalf.

The statutory language, therefore, does not support the contention that plaintiffs

were entitled to non-disability retirement benefits based on their investment in MSC or

ARSC.

2. Companion Provisions of the PERL

To interpret statutory language, we look not only to the particular provision at

issue, but also to “the statutory scheme of which the statute is a part. [Citation.] We look

to the entire statutory scheme in interpreting particular provisions ‘so that the whole may

be harmonized and retain effectiveness.’ [Citation.] ‘In the end, we “ ‘must select the

construction that comports most closely with the apparent intent of the Legislature, with a

view to promoting rather than defeating the general purpose of the statute, and avoid an

interpretation that would lead to absurd consequences.’ [Citation.]” ’ [Citation.]”

(People v. Plumlee (2008) 166 Cal.App.4th 935, 940.)

We find section 21037, added in 2003 by Senate Bill 268, instructive. Section

21037, subdivision (a) provides that if a member has elected to purchase additional

service credit through installment payments but retires due to disability while making

those payments and the additional service credit does not increase the member’s

retirement allowance, he or she “may elect to cancel the installments prospectively.” The

section further provides that “[n]o refund of contributions paid in installments prior to the

effective date of the member’s election may be payable to a member or retired member as

a result of an election made by a member pursuant to this section.” (Ibid.)

The legislative history of this section explained that “[m]ost members who

purchase additional service credit receive larger retirement allowances by doing so.

However, some members who retire on disability do not realize any benefit increases

from their purchases. Upon approval of their disability retirements, many members begin

14

receiving a fixed percentage of compensation regardless of age, retirement formula, or

accrued service credit. In such cases, the additional service credit they purchased does

not improve their retirement benefits.” (Assem. Com. on Appropriations, Analysis of

Sen. Bill No. 268 (2003-2004 Reg. Sess.).) Nonetheless, under existing law, “[m]embers

who elect, prior to becoming disabled, to purchase service credit using payment plans

will be required to complete the payment plans regardless of the amounts owed or the

fact that they will receive no additional benefits from their purchases.” (Ibid.)

Accordingly, the proposed bill “would allow disabled employees and survivors to stop

paying for service credit purchases that will not benefit them . . . . Doing so will help to

alleviate financial hardship for public employees and their survivors who have undergone

tragedies.” (Ibid.)

Section 21037 does not control the result in the present case because none of the

plaintiffs are seeking through this appeal to cancel installment payments prospectively.6

Nonetheless, it is relevant to our analysis. Section 21037 and its history make clear that

the Legislature was aware that CalPERS was construing the statute in precisely the

manner plaintiffs now challenge—i.e., to mean that CalPERS members who became

disabled after purchasing service credit would not receive any additional retirement

benefits as a result of their service credit purchase. The Legislature chose to address this

circumstance by permitting members who purchased service credit with installment

payments to suspend payments prospectively only—not by providing for a refund of

payments already made or offering a disabled retiree an annuity purchased with those

payments. If the Legislature had intended a more expansive remedy, we presume it

would have said so. (See, e.g., People v. Griffis (2013) 212 Cal.App.4th 956, 964-965

[where Legislature did not include requirement in statute, court “must presume that its

choice in that regard was intentional”].)

6

As we have said, Andert asked for, and received, permission to suspend his

installment payments prospectively. His right to do so therefore is not at issue in this

appeal.

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3. CalPERS’s Interpretation of Section 21420

We examine finally the administrative interpretation of the PERL by CalPERS.

“ ‘ “Although not necessarily controlling . . . the contemporaneous administrative

construction of [an] enactment by those charged with its enforcement . . . is entitled to

great weight, and courts generally will not depart from such construction unless it is

clearly erroneous or unauthorized.” ’ (People ex. rel. Lungren v. Superior Court (1996)

14 Cal.4th 294, 309, quoting Coca-Cola Co. v. State Bd. of Equalization (1945)

25 Cal.2d 918, 921.)” (Bernard v. City of Oakland (2012) 202 Cal.App.4th 1553, 1565

(Bernard).)

In the present case, plaintiffs concede that CalPERS has consistently interpreted

the PERL to mean that if safety workers take industrial disability retirement before the

age of 50, they will be paid “only the statutorily-mandated industrial disability retirement

(IDR) allowance in the amount of 50% of their last salary”—whether or not they have

previously purchased MSC or ARSC. Although CalPERS’s construction of the statutory

language at issue is not binding, because CalPERS is the administrative body charged

with implementing the PERL, its interpretation is entitled to deference. (See Bernard,

supra, 202 Cal.App.4th at p. 1565.)

C. In re Marriage of Green Does Not Compel a Different Result

Plaintiffs contend that their interpretation of the statute is required by the

California Supreme Court’s recent decision in In re Marriage of Green (2013) 56 Cal.4th

1130 (Marriage of Green). Marriage of Green discussed the division of CalPERS

retirement benefits following a marital dissolution; for the reasons that follow, it is not

relevant to our analysis.

In Marriage of Green, supra, 56 Cal.4th 1130, a firefighter (husband) elected

during his marriage to purchase four years of military service credit. Husband had

completed all of his military service before he married wife, but purchased the MSC

through installment payments made with community funds. When husband and wife

separated, more than $11,000 in community funds had been used to purchase the MSC,

16

but the value of the MSC “substantially exceed[ed] the cost of obtaining it.” (Id. at

p. 1132.)

The court concluded that because the husband rendered his military service before

the marriage, the four years of MSC, reduced by the amount of the community’s

contribution to the cost of purchasing it, were the husband’s separate property.

(Marriage of Green, supra, 56 Cal.4th at pp. 1132-1133.) The court explained: “To

designate a portion of those four years of credit as community property—as did the Court

of Appeal—solely due to the community’s contribution towards the required payment

gives no weight to husband’s premarital service to his country. . . . [¶] . . . [¶] . . . The

[purchase of MSC] ‘was possible only as consideration for husband’s service’ in the

United States military—service that predated the marriage. [Citation.] The difference in

value [between the value of the MSC and the cost of obtaining it] was not due to what the

community contributed—part of the installment payments—but to what the husband

brought to the community—his military service. For these reasons, the difference in

value between the four years’ worth of credit and the cost of obtaining it is husband’s

separate property, subject to reimbursement for the community’s contribution to the cost

of obtaining the credit.” (Id. at pp. 1138-1139.)

Marriage of Green is not relevant to any of the issues before us. It addressed the

characterization of MSC as community or separate property, an issue not presented here,

and it did not discuss either industrial disability benefits or section 21420. It therefore

does not guide our analysis.

Plaintiffs urge that Marriage of Green is relevant because it “denies CalPERS any

authority to transform the military/airtime investments into ‘service’ or ‘normal

contributions’ in the safety job worked at the time of deposit.” We do not agree. As we

have said, the central issue before us is whether MSC or ARSC is a “category of

membership”—a question that Marriage of Green neither addresses nor decides. We

also reject plaintiffs’ suggestion that Marriage of Green is relevant because it addresses

“the question of when benefits attributable to purchased service credits arise.” Again, the

issue before us is not when credit arises, but whether MSC or ARSC is a “category of

17

membership,” thus triggering the application of section 21420. Because Marriage of

Green does not address this issue, it cannot guide our analysis.

For all of the reasons discussed above, we conclude that the trial court properly

sustained CalPERS’s demurrer to the first cause of action for breach of statutory duty.

II.

Breach of Contract (Second Cause of Action)

Plaintiffs’ second cause of action is for breach of contract. Plaintiffs allege that

the MSC and ARSC contracts contained a promise by CalPERS “to provide Plaintiffs

with increases in their future allowance if Plaintiffs purchased [MSC or ARSC].”

Plaintiffs further allege that CalPERS breached those contracts “by failing to pay in full

the [MSC or ARSC] benefit, including (i) failing to pay an additional benefit (including

the contracted additional [MSC or ARSC] benefit) in the full amount above the disability

entitlement and/or (ii) failing to refund the Plaintiffs’ lump sum and installments

payments, including with interest.”

A. General Principles of Contract Interpretation at the Demurrer Stage

“When reviewing whether a plaintiff has properly stated a cause of action for

breach of contract, we must determine whether the alleged agreement is ‘reasonably

susceptible’ to the meaning ascribed to it in the complaint. (Hervey v. Mercury Casualty

Co. (2010) 185 Cal.App.4th 954, 964.) ‘ “So long as the pleading does not place a

clearly erroneous construction upon the provisions of the contract, in passing upon the

sufficiency of the complaint, we must accept as correct plaintiff’s allegations as to the

meaning of the agreement.” [Citation.]’ (Aragon-Haas v. Family Security Ins. Services,

Inc. (1991) 231 Cal.App.3d 232, 239 (Aragon-Haas); see also Connell v. Zaid (1969)

268 Cal.App.2d 788, 795 [‘in considering a pleading attacked by general demurrer,’

plaintiff’s ‘ “construction of . . . [the contract] should be accepted, if such construction be

reasonable” ’].)” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1384-

1385 (Klein).) Thus, to survive demurrer, plaintiffs need only set forth a reasonable

interpretation of their MSC or ARSC contracts.

18

“The fundamental goal of contract interpretation is to give effect to the mutual

intention of the parties as it existed at the time they entered into the contract. [Citations.]

That intent is interpreted according to objective, rather than subjective, criteria.

[Citation.] When the contract is clear and explicit, the parties’ intent is determined solely

by reference to the language of the agreement. (Civ. Code, §§ 1638 [‘language of a

contract is to govern its interpretation, if the language is clear and explicit, and does not

involve an absurdity’], 1639 [‘[w]hen a contract is reduced to writing, the intention of the

parties is to be ascertained from the writing alone, if possible’].) The words are to be

understood ‘in their ordinary and popular sense.’ (Civ. Code, § 1644.)” (Klein, supra, at

p. 1385.)

B. The Contract Language

Although plaintiffs assert that the MSC and ARSC contracts contained CalPERS’s

promises to increase plaintiffs’ future retirement benefits, plaintiffs do not identify the

particular language they believe contains such promises. Accordingly, we have

independently reviewed the entirety of each of the plaintiffs’ contracts.

Each plaintiff entered a slightly different contract, but the language of each

contract is substantially similar. Each contract has two parts: (1) a letter from CalPERS

to the plaintiff, offering the option to purchase additional service credit, and (2) a letter

from the plaintiff to CalPERS, accepting the offer and identifying how the purchase

would be made. Marzec’s contract is illustrative. His offer letter states as follows:

“COST INFORMATION

“Service Credit Type: Public Agency Military

“Lump Sum Cost: $23,709.22

“ESTIMATED MONTHLY PENSION $642.30 if you retire at Age

INCREASE: 50*

“Dear Robert Marzec:

“CalPERS has received confirmation of your intent to purchase your Public

Agency Military. Upon further review of your request, it has been determined that you

are eligible to purchase this additional service credit. . . . If elected, this service will be

credited to your retirement account as shown below:

19

Employer Name Retirement Category Year(s) of Service

Formula Credit

City of Stockton 3% @ Age 50 (PA Local Police 4.000

Safety)

Total Service 4.000

...

“ESTIMATED MONTHLY PENSION INCREASE

“The estimated monthly pension increase information was calculated using the

monthly payrate shown above based upon the highest monthly retirement pension option.

This amount is only an ESTIMATE; whereas, your actual retirement allowance will be

based upon your average payrates.

“For SAFETY MEMBERS purchasing additional safety service, keep in mind

that the percentage of retirement allowance to which you will be entitled under the Safety

formula is limited to a percentage of your average CalPERS compensation at the time of

retirement. The estimated monthly pension increase shown above takes your current

posted service and benefit cap into consideration.

“*If you are considering a DISABILITY RETIREMENT, this additional service

credit may not benefit you. Please request a retirement estimate with and without this

additional service credit by submitting a CalPERS Retirement Allowance Estimate

Request Form (MSD 470) along with a copy of this cover letter. If you need additional

information or retirement counseling, please contact CalPERS at (888) 225-7377.

“Next Step:

“● If you are not interested in purchasing the additional service credit at this

time, no response is needed. You may request to purchase this service credit anytime

prior to your retirement date.

“● If you wish to purchase the additional service credit, please complete, sign

and return the enclosed Election to Purchase Service Credit form to the address shown

above. The Election to Purchase Service Credit form is irrevocable and must be returned

within 30 days.”

20

Marzec accepted CalPERS’s offer to purchase additional service credit by signing

and returning an “Election to Purchase Service Credit” form. In relevant part, the

election form said:

“You [CalPERS] informed me on September 17, 2004 of my right to elect to

contribute and receive service credit for my Public Agency Military from CalPERS. . . .

[¶] . . . I hereby elect to purchase and receive additional service credit under the

provisions of law and I enclose $23,709.22. . . .

“[¶] . . . [¶]

“I UNDERSTAND THIS ELECTION IS IRREVOCABLE.”7

C. Plaintiffs’ Proposed Interpretation of the Contracts Conflicts with Their

Plain Meaning

As we have said, plaintiffs allege that the contracts contained a promise by

CalPERS “to provide Plaintiffs with increases in their future allowance if Plaintiffs

purchased [MSC or ARSC].” In other words, plaintiffs seem to suggest that CalPERS

offered, and plaintiffs accepted, a guaranteed future income stream in the amounts

estimated in the offer letters. For example, as to plaintiff Marzec, plaintiffs assert that

“CalPERS promised Marzec that he would increase his monthly retirement benefit by

12% by investing funds to obtain credit for 4 years he served in the U.S. Marines.”

The contractual language does not support this construction. The offer letters told

plaintiffs they were eligible to purchase “additional service credit,” and that if they

elected to do so, “this service will be credited to your retirement account as shown

below.” (Italics added.) Robert Marzec, for example, was advised that his additional

service would be credited to his retirement account with the City of Stockton, in the

category “local police,” subject to the retirement formula “3% @ Age 50 ([Public

Agency] Safety).” CalPERS’s offer, therefore, was not for a guaranteed future income

7

Plaintiff Slaughter’s offer letter contains somewhat different language with regard

to disability retirement benefits: “For DISABILITY RETIREMENTS OR SAFETY

MEMBERS, if you would like an estimate of the cost benefit of this service credit,

please contact CalPERS . . . .”

21

stream, as plaintiffs seem to suggest, but rather for “additional service credit” associated

with a particular employer (City of Stockton), employment category (local police), and

retirement formula (3% @ Age 50).

Further, although the offer letters identify an “estimated monthly pension

increase” for each plaintiff, they nowhere suggest that a pension increase is promised or

guaranteed. To the contrary, the offer letters say that each projected increase “is only an

ESTIMATE.” (Emphasis in original.) In addition, the offer letters state that (1) the

projected increases assume retirement “at Age 50,” and (2) if plaintiffs take a disability

retirement, “this additional service credit may not benefit you.” (Italics added.)

Taken together, therefore, this language is not reasonably susceptible to the

meaning plaintiffs ascribe to it: That they were “promised” a pension increase if they

purchased MSC or ARSC, even if they retired before age 50, and even if they took a

disability retirement. Accordingly, plaintiffs have not stated a claim for breach of

contract, and the demurrer to that cause of action was properly sustained.

III.

Rescission (Third Cause of Action)

A. Cause of Action and Demurrer

Plaintiffs’ third cause of action is for rescission. It asserts that plaintiffs are

entitled to rescind their MSC/ARSC contracts because CalPERS “induce[d] Plaintiffs to

contract . . . on the explicit and implicit promise that their retirement benefits will

increase” and “[did] not disclose the risk of loss if the Plaintiff [became] disabled.”

Plaintiffs assert that through a variety of member publications, CalPERS described MSC

and ARSC as a way to “increase” a member’s retirement benefit, without disclosing “a

risk of loss of [MSC or ARSC] if a Member takes IDR.” Further, CalPERS publications

“do not disclose that because CalPERS accounts for, characterizes, or otherwise treats the

Members’ contributions or investment in [MSC or ARSC] as ‘normal contributions’

associated with the job that the Member holds at the time that he or she purchases the

optional benefit, CalPERS can seize or fail to credit the investment, fail to pay an

additional annuity, and in effect transfer the investment to the employer.” Plaintiffs

22

allege that their consent therefore was given under a mistake of fact or law, or was

induced by fraud, and the contracts are unlawful, contrary to public policy, and

substantively and procedurally unconscionable. Plaintiffs “offer to restore everything of

value which the Plaintiffs have received from CalPERS under the contract upon condition

that CalPERS do likewise.”

CalPERS’s demurrer to the rescission cause of action conceded that a pension

system has a duty to “ ‘fully inform’ ” a member of retirement options. CalPERS urged,

however, that the court should examine the language of CalPERS’s disclosures “alleged

in or attached to the FAC,” and on that basis conclude that CalPERS “fully disclosed to

Plaintiffs that they might not benefit from their service credit purchases.”

The trial court sustained the demurrer to this cause of action, concluding that

“[t]he service credit packets clearly disclosed that ‘this additional service credit may not

benefit’ employees who ‘are considering DISABILITY RETIREMENT’ rather than

service retirement. . . . Although Plaintiffs contend that the loss of their permissive

service credits ‘violates their reasonable expectations at the time of contracting,’ this is

not possible because the contract discloses that the credits may be lost upon disability

retirement.”

B. Elements of Rescission

“ ‘A contract is extinguished by its rescission.’ (Civ. Code, § 1688.) ‘Rescission

not only terminates further liability but restores the parties to their former position by

requiring each to return whatever he or she received as consideration under the contract,

or, where specific restoration cannot be had, its value. [Citations.]’ (1 Witkin, Summary

of Cal. Law (10th ed. 2005) Contracts, § 926, p. 1023.) The court does not rescind

contracts but only affords relief based on a party-effected rescission. Both the grounds

for rescission and the means by which parties may rescind their contract are governed by

statute. (See Civ. Code, § 1688 et seq.)” (Estate of Wong (2012) 207 Cal.App.4th 366,

382-383.)

The circumstances that entitle a party to rescind are set forth in Civil Code section

1689. Subdivision (b) provides that a contracting party may unilaterally rescind the

23

contract if: (1) “the consent of the party rescinding . . . was given by mistake, or obtained

through duress, menace, fraud, or undue influence, exercised by or with the connivance

of the party as to whom he rescinds, or of any other party to the contract jointly interested

with such party,” (2) “the consideration for the obligation of the rescinding party fails, in

whole or in part, through the fault of the party as to whom he rescinds,” (3) “the

consideration for the obligation of the rescinding party becomes entirely void from any

cause,” (4) “the consideration for the obligation of the rescinding party, before it is

rendered to him, fails in a material respect from any cause,” (5) “the contract is unlawful

for causes which do not appear in its terms or conditions, and the parties are not equally

at fault,” or (6) “the public interest will be prejudiced by permitting the contract to

stand.”

C. Plaintiffs Have Stated a Cause of Action for Rescission

Contrary to the trial court, we conclude that plaintiffs have stated a cause of action

for rescission. “In considering whether a demurrer should have been sustained, ‘we

accept as true the well-pleaded facts in the operative complaint.’ ” (Beacon Residential

Community Assn. v. Skidmore, Owings & Merrill LLP (2014) 59 Cal.4th 568, 571.)

Thus, at the demurrer stage plaintiffs were required only to plead—not to prove—a cause

of action for rescission.

The trial court sustained the demurrer because it concluded that the contract

language (discussed above) was adequate to put plaintiffs on notice that if they took a

disability retirement, they might not benefit from their purchase of MSC or ARSC.

Plaintiffs’ cause of action for rescission, however, does not depend on the language of the

contracts, but on the totality of CalPERS’s disclosures to its members. Plaintiffs assert

that as a result of those disclosures, their consent to the contracts was induced by mistake

of fact and law, fraud, and undue influence, and enforcement of the contracts would be

contrary to public policy. Because at the demurrer stage we accept these allegations as

true, the demurrer to the third cause of action should have been overruled.

24

IV.

Breach of Fiduciary Duty (Fourth Cause of Action)

Plaintiffs’ fourth cause of action alleges breach of fiduciary duty. The complaint

alleges that CalPERS is a fiduciary and, as such, owed plaintiffs a duty to disclose the

potential risks associated with purchasing MSC or ARSC. The complaint further alleges

that CalPERS failed adequately to disclose those risks—i.e., that CalPERS’s publications

and other communications with plaintiffs did not advise them of the risk of forfeiting

MSC or ARSC investments if plaintiffs took an industrial disability retirement, rather

than a service retirement.

On appeal, plaintiffs contend that the trial court “wrongly made factual

determinations on demurrer that the text in CalPERS’[s] military/airtime contracts was

adequate to provide notice. If, as the lower court seemed to believe, the appropriate

question was whether the contractual disclosures given were adequate to put a reasonable

person on notice—even inquiry notice—then their adequacy was a question of fact.”

CalPERS concedes that, as a public pension system, it owed plaintiffs fiduciary

duties. It urges, however, that we should affirm the order sustaining the demurrer to this

cause of action because plaintiffs’ breach of fiduciary duty claim “cannot survive the

disclosures set out in the exhibits attached to their Complaints.”

We conclude that the demurrer to this cause of action should have been overruled.

“The elements of a cause of action for breach of fiduciary duty are the existence of a

fiduciary relationship, its breach, and damage proximately caused by that breach. (City of

Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445,

483.) Whether a fiduciary duty exists is generally a question of law. (David Welch Co.

v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 890.) Whether the defendant breached

that duty towards the plaintiff is a question of fact. (Ibid.)” (Amtower v. Photon

Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1599, italics added.)

There is no dispute that CalPERS is a fiduciary. As such it is “charged with the

fiduciary relationship described in Civil Code section 2228: ‘In all matters connected

with his trust, a trustee is bound to act in the highest good faith toward his beneficiary,

25

and may not obtain any advantage therein over the latter by the slightest

misrepresentation, concealment, threat, or adverse pressure of any kind.’ ” (Hittle v.

Santa Barbara County Employees Retirement Assn. (1985) 39 Cal.3d 374, 392-393.)

“This fiduciary relationship is judicially guarded by the application of Civil Code section

2235, which provides that ‘[a]ll transactions between a trustee and his beneficiary during

the existence of the trust, or while the influence acquired by the trustee remains, by which

he obtains any advantage from his beneficiary, are presumed to be entered into by the

latter without sufficient consideration, and under undue influence.’ ” (Id. at p. 393.)

In the present case, there appear to be factual disputes about what CalPERS

disclosed or what representations were made. Indeed, although plaintiffs have attached to

their complaint some of the communications between CalPERS and plaintiffs concerning

their service credit purchases, there is no suggestion in the complaint that these are all of

the relevant disclosures on which plaintiffs base their cause of action. Thus, the breach

of fiduciary duty claim should not have been disposed of at the demurrer stage.

V.

Denial of Equal Protection (Fifth Cause of Action)

A. Plaintiffs’ Equal Protection Claim

The fifth cause of action alleges denial of equal protection of the law. Plaintiffs

assert that disabled retirees who purchased MSC or ARSC are treated differently than

disabled retirees who did not: “[A]ppellants are treated unequally solely because they

purchased military/airtime while other members did not. All safety members are entitled

to a statutory IDR benefit of 50% of their highest compensation, at no cost to themselves

. . . . But appellants are charged significantly more for their IDR benefits compared to

those who never [bought] military/airtime solely because CalPERS characterizes the

investment as time ‘in the safety job’, transfers it to the employers, and thus decreases

employer liability but increases appellants’ costs and reduces their net IDR proceeds.”

Plaintiffs give the following example: “Suppose twin brothers start as firefighters

on the same date, earn the same pay and promotions, and make identical member

contributions. Both are disabled at age 45 in the same fire and both retire on IDR.

26

Suppose further that one bought 4 years of prior military time for $80,000 before being

disabled while the other did not. Each will receive an identical IDR allowance of 50% of

their final compensation. But the brother who bought $80,000 of military time will be

discriminated against by receiving nothing for that additional investment, in effect

starting $80,000 in the hole compared to his twin.”

B. The Requirement of Equal Protection: Equal Treatment of Persons Who

Are Similarly Situated

“ ‘The concept of equal protection recognizes that persons who are similarly

situated with respect to a law’s legitimate purposes must be treated equally. [Citation.]

Accordingly, “ ‘[t]he first prerequisite to a meritorious claim under the equal protection

clause is a showing that the state has adopted a classification that affects two or more

similarly situated groups in an unequal manner.’ ” [Citation.] “This initial inquiry is not

whether persons are similarly situated for all purposes, but ‘whether they are similarly

situated for purposes of the law challenged.’ ” [Citation.]’ (People v. Brown (2012)

54 Cal.4th 314, 328; accord, People v. Wutzke (2002) 28 Cal.4th 923, 943.)” (People v.

Losa (2014) 232 Cal.App.4th 789, 792; see also Grossmont Union High School Dist. v.

State Dept. of Education (2008) 169 Cal.App.4th 869, 892 [“The essence of an equal

protection claim is that two groups, similarly situated with respect to the law in question,

are treated differently.”].)

C. The Complaint Fails to State an Equal Protection Claim

We agree with the trial court that the complaint fails to state an equal protection

claim. The complaint assumes that two disability retirees—one who purchased

MSC/ARSC, and one who did not—are similarly situated if they served in the same

position, for an equivalent number of years, and retired at the same age. By this

assumption plaintiffs err, because the disability retiree who purchased MSC/ARSC has

more years of retirement credit, as the following example demonstrates:

27

Years of service Years of purchased TOTAL SERVICE

service credit CREDIT (YEARS)

Member A 20 4 24

Member B 20 0 20

In the above example, although neither member gets a service retirement benefit if

he retires before age 50, Member A “loses” more years of service credit because he has

accumulated more. This is not a violation of equal protection because the two members

are not similarly situated: Member A has accumulated 24 years of service credit, while

Member B has accumulated only 20.

A more appropriate comparison for equal protection purposes is of two disability

retirees who have accumulated the same amount of service credit. For example:

Years of service Years of purchased TOTAL SERVICE

service credit CREDIT (YEARS)

Member A 16 4 20

Member B 20 0 20

In this example, if Member A and Member B both take disability retirement at age

45, both “lose” 20 years of service credit. Member A, who has purchased some of his

retirement credit, is treated no differently than Member B, who has earned all of his.

There is no equal protection violation.8

8

Plaintiffs suggest that in this example, Member A “loses” more than Member B

because Member A has been charged more than Member B for his or her service credits.

Not so: Both members have purchased their service credits through a combination of

monetary contributions and service.

28

VI.

Denial of Due Process (Sixth Cause of Action)

The sixth cause of action alleges denial of due process. Plaintiffs assert that

CalPERS has denied them procedural due process by “seizing the [MSC or ARSC]

benefits and investment without first giving Plaintiffs some adequate legal process.”

Plaintiffs also assert that CalPERS has denied them “substantive due process and the

right to be free from arbitrary or unreasonable government action.”

On appeal, plaintiffs cite no legal support for the assertion that CalPERS’s action

constitutes a violation of procedural or substantive due process. The argument therefore

is forfeited. (E.g., Saltonstall v. City of Sacramento (2014) 231 Cal.App.4th 837, 858,

fn. 10 [appellate argument forfeited “for failure to make anything more than ‘only

passing arguments, unsupported with citation to authority or evidence’ ”].)

VII.

Unconstitutional Impairment of Contract (Tenth Cause of Action)

The tenth cause of action alleges unconstitutional impairment of contract. It

asserts: “Government Code sections 20909, 21006-21008, 21013, 21020.5, 21023.5,

21024, 21025.5, 21027 and 21029-21031 impaired [plaintiffs’] right to their 50% IDR

allowance by causing the money to be described as ‘normal contributions’ and then

us[ing] those funds to offset Plaintiffs’ disability allowance. [Plaintiffs’] IDR entitlement

vested at the time of their first employment in the ‘safety’ category. CalPERS’[s]

practices impaired [plaintiffs’] right to both their IDR allowances and their additional

optional benefits. (California Constitution, Article I, Section 9.) The contract clauses of

the federal and state Constitutions limit the power of a state to modify its own contracts

with other parties, as well as contracts between other parties.”

We agree with the trial court that plaintiffs have not stated a claim for

unconstitutional impairment of contract. Plaintiffs’ contention here is analogous to the

plaintiff’s in Miller v. State of California (1977) 18 Cal.3d 808 (Miller), in which a long-

time state employee urged that the state unconstitutionally impaired his contractual

pension rights by reducing his mandatory retirement age from 70 to 67. The trial court

29

found that the change in law did not impair any of plaintiff’s rights, and the Supreme

Court affirmed. In so concluding, the Supreme Court noted that “it is well established

that ‘public employment gives rise to certain obligations which are protected by the

contract clause of the Constitution,’ ” and thus that “ ‘[s]ince a pension right is “an

integral portion of contemplated compensation” [citation] it cannot be destroyed, once it

has vested, without impairing a contractual obligation.’ ” (Id. at p. 815.) Further, “the

right to pension benefits vests upon the acceptance of employment [citations], even

though the right to immediate payment of a full pension may not mature until certain

conditions are satisfied.” (Ibid.) Nonetheless, “[a]lthough vested prior to the time when

the obligation to pay matures, pension rights are not immutable. For example, the

government entity providing the pension may make reasonable modifications and

changes in the pension system. This flexibility is necessary ‘to permit adjustments in

accord with changing conditions and at the same time maintain the integrity of the system

and carry out its beneficent policy.’ ” (Id. at p. 816.)

Applying these principles, the Miller court held that the change in plaintiff’s

pension rights was not an unconstitutional impairment of contract. It explained: “[U]pon

acceptance of public employment plaintiff acquired a vested right to a pension based on

the system then in effect. That system allowed him to earn successively higher levels of

benefits based on his years of service and his highest average salary during three

consecutive years of employment. Under that system, he could have achieved maximum

benefits had he worked until age 70. Although his right to a pension based on this system

was vested, plaintiff was not assured of receiving maximum pension benefits. His right

to receive such benefits was subject to conditions and contingencies; specifically, that he

remain in state employment until age 70. Plaintiff failed to satisfy that condition since he

was lawfully placed on retirement at age 67. Thus, his right to a maximum pension based

on retirement at age 70 never matured.” (Miller, supra, 18 Cal.3d. at p. 817.)

The present case is analogous. Although plaintiffs’ industrial disability and

pension rights vested when plaintiffs accepted public employment, their right to receive

either industrial disability benefits or service retirement benefits was subject to

30

“conditions and contingencies.” Specifically, to be entitled to an industrial disability

benefit, plaintiffs had to suffer a work-related disability; alternatively, to be entitled to a

service retirement benefit, plaintiffs had to remain in their local safety positions until at

least age 50. Because all plaintiffs retired before age 50, their rights to service retirement

benefits never matured. As a matter of law, therefore, the denial of service retirement

benefits was not an unconstitutional impairment of contract. (See Miller, supra,

18 Cal.3d at p. 817 [“ ‘The fact that a pension right is vested will not, of course, prevent

its loss upon the occurrence of a condition subsequent such as lawful termination of

employment before completion of the period of service designated in the pension

plan.’ ”].)

VIII.

Remaining Causes of Action

Plaintiffs make no contentions on appeal with regard to their seventh, eighth,

ninth, eleventh, and twelfth causes of action, for equitable relief, declaratory relief,

accounting, estoppel, and other relief. Therefore, we do not address them.

[[ Begin nonpublished portion ]]

[[ IX.

Class Definition/Statute of Limitations

Because the causes of action for breach of fiduciary duty and rescission survive

demurrer, we address the additional issue of CalPERS’s demurrer to the class definition.

A. Background

1. Class Definition

The complaint defines the putative plaintiff class as follows: “All persons

employed as safety Members or in other positions covered for the potentiality of

industrial disability retirement who have purchased, or in the future will purchase,

‘Military Service Credit’ or ‘Military Time,’ ‘Additional Retirement Service Credit’ or

other present value service credit options from the California Public Employees’

Retirement System (CalPERS) and either overpaid for their benefits or did not receive all

of the benefits they are entitled to.

31

“The above defined class includes those who have paid monies that have been

included in the purchase price or cost ‘of Military Service Credit’ or ‘Military Time,’

‘Additional Retirement Service Credit’ or other present value service credit options

which are (i) the lawful responsibility of Plaintiffs’ employers and/or the retirement

system, (ii) in addition to the amount necessary to fund the additional service or annuity

benefit, (iii) costs unrelated to the Member’s increased service or annuity benefit; or (iv)

which Plaintiffs cannot be lawfully required to pay.

“The above defined class includes those who have suffered, or in the future will

suffer, an industrial disability retirement (IDR), and now receive or will receive

retirement allowances, IDR allowances, other benefits, or a combination thereof, that are

or will be such that Plaintiffs will not receive all of the benefits that they are entitled to.”

2. Delayed Accrual

The complaint alleges that the statute of limitations did not begin to run on any of

plaintiffs’ claims until at least October 15, 2010. The complaint asserts: “CalPERS’[s]

practices of accounting for and characterizing [MSC and ARSC] as associated with the

safety job held by the Member at the time of purchase remained hidden until CalPERS

disclosed those practices no earlier than October 15, 2010, in its first pleadings and

disclosures in response to a different class action Complaint in the case of David Yost, et

al. v. CalPERS, Los Angeles Superior Court Case No. BC444842 (hereafter ‘Yost’).

Therefore, the causes of action of Plaintiffs and all members of the proposed class did not

accrue until October 15, 2010, at the very earliest. [¶] . . . [¶] . . . Plaintiffs allege that the

earliest that anyone could have learned of CalPERS’s improper accountings, errors, and

practices related to contributions arose from CalPERS’[s] first responsive pleadings and

disclosures that it filed in response to the Complaint in Yost. More specifically, Plaintiffs

allege that the earliest that CalPERS disclosed that it characterizes the monies paid by

Plaintiffs for the purchase of [MSC/ARSC] as contributions in the current job (‘made in

respect to service rendered in a category of membership’ in which the Member was

employed at the time of purchase), rather tha[n] correctly characterizing the monies as

contributions made in respect to service outside of the job in which the Member was

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disabled, was in connection with CalPERS’[s] Demurrer filed in Yost on October 15,

2010.”

The complaint also alleges that Marzec and Healy submitted timely government

claims pursuant to the Government Claims Act, section 900 et seq., that the government

claims were filed “individually and in a representational capacity for all others in the

class identified herein,” and that “a single class representative may comply with the

purported presentation requirements to maintain a class action.”

3. CalPERS’s Demurrer to the Class Definition

CalPERS demurred to the class definition as “overly broad” based on CalPERS’s

claim that the statute of limitations had run as to some putative plaintiffs’ claims and that

a government claim had not been timely filed as to those putative plaintiffs. CalPERS

implicitly conceded that a claim by a class representative for himself and others similarly

situated could be found sufficient to support an action on behalf of the others in the class

without the necessity for each individual to file a claim. (See California Restaurant

Management Systems v. City of San Diego (2011) 195 Cal.App.4th 1581, 1592.)

Therefore, because Marzec presented a claim in connection with some of the pension

issues raised in this action, CalPERS conceded that claim “was sufficient to preserve the

rights of putative class members whose claims had accrued within one year beforehand—

on or after March 24, 2010.” CalPERS urged, however, that any putative class members

whose claims accrued before March 24, 2010, were not within Marzec’s government

claim and thus could not be part of this action.

CalPERS asserted, moreover, that the delayed discovery rule did not apply to

persons who had already taken disability retirement and begun receiving benefits

payments. It said: “Given that Plaintiffs expected CalPERS to provide them additional

amounts over and above their 50% IDR allowances, Plaintiffs had every reason to suspect

something was wrong when they first saw they were receiving no more than 50% of their

pay. Expecting to be paid a certain amount and receiving less is an obvious wrong—

providing a factual basis for all the causes of action’s elements.”

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The trial court adopted CalPERS’s analysis and sustained the demurrer to the class

definition. The court explained that the plaintiffs contended that the claims of all class

members accrued within less than a year of the filing of the present action because “none

of them discovered or could have discovered CalPERS[’s] improper characterization of

their investments in [MSC/ARSC] until CalPERS disclosed this fact in the course of the

Yost v. CalPERS lawsuit [BC444842].” The court disagreed: “Many allegations in the

current complaint are identical to Yost. Plaintiffs were aware of CalPERS’[s] calculation

methods before the Yost complaint was filed and the demurrer heard. Moreover,

according to the FAC, Plaintiffs should have been aware of their injury as of the date they

received their first IDR checks.”

B. The Trial Court’s Determinations Concerning Class Suitability Were

Premature

1. Claims Presentation Requirement and Delayed Accrual

The Tort Claims Act (Gov. Code, § 900 et seq.) “establishes certain conditions

precedent to the filing of a lawsuit against a public entity.” (State of California v.

Superior Court (2004) 32 Cal.4th 1234, 1237.) “[A]ll claims for money or damages

against the state” that meet the following criteria must be presented to the Victim

Compensation and Government Claims Board (VCGCB): “(1) For which no

appropriation has been made or for which no fund is available but the settlement of which

has been provided for by statute or constitutional provision. [¶] (2) For which the

appropriation made or fund designated is exhausted. [¶] (3) For money or damages on

express contract, or for an injury for which the state is liable. [¶] (4) For which

settlement is not otherwise provided for by statute or constitutional provision.” (§ 905.2,

subd. (b).)

“Claims for personal injury must be presented not later than six months after the

accrual of the cause of action, and claims relating to any other cause of action must be

filed within one year of the accrual of the cause of action. (§ 911.2, subd. (a).) Timely

claim presentation is not merely a procedural requirement, but is a condition precedent to

the claimant’s ability to maintain an action against the public entity. [Citation.] ‘Only

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after the public entity’s board has acted upon or is deemed to have rejected the claim may

the injured person bring a lawsuit alleging a cause of action . . . against the public entity.’

[Citation.]” (California Restaurant Management Systems v. City of San Diego, supra,

195 Cal.App.4th at p. 1591.)

“The accrual date for presenting a government tort claim is determined by the

rules applicable to determining when any ordinary cause of action accrues. (§ 901.) That

date may be postponed under the delayed discovery doctrine. (K.J. [v. Arcadia Unified

School Dist. (2009)] 172 Cal.App.4th [1229], 1233.) Under this doctrine, a cause of

action does not accrue until the plaintiff discovers, or has reason to discover, the cause of

action. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) A plaintiff has

reason to discover a cause of action when he or she has reason to at least suspect a factual

basis for its elements. Suspicion of one or more of the elements, coupled with knowledge

of any remaining elements, will generally trigger the applicable limitations period.

(Ibid.)” (S.M. v. Los Angeles Unified School Dist. (2010) 184 Cal.App.4th 712, 717.)

2. Plaintiffs’ Allegations of Delayed Accrual Are Sufficient to Survive

Demurrer

On appeal, plaintiffs contend that “all similarly situated persons are entitled to

relief, regardless of how long ago they invested in military/airtime, received ADR, or

retired,” because as a class, the plaintiffs “could not detect or comprehend CalPERS’[s]

breach or [their] resulting injuries.” Indeed, plaintiffs suggest, they “did not discover

(and were not even put on inquiry notice) until CalPERS indirectly revealed its

statutorily-unsupported accounting relating to IDR in another lawsuit [footnote omitted]

shortly before Marzec and Andert were filed. [Citation.] [Plaintiffs] exercised

reasonable diligence after discovery and timely filed government claims and suit.”

We conclude that it was premature for the trial court to make determinations

pertaining to class suitability on demurrer. “ ‘[B]ecause the sustaining of demurrers

without leave to amend represents the earliest possible determination of the propriety of

class action litigation, it should be looked upon with disfavor. This is not to say that

sustaining demurrers to class action complaints without leave to amend is always

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improper. Conceptually, we suppose that any “class action” complaint at the pleading

stage is possible of being amended so as to plead a class action which will survive

demurrer, but we also recognize that certain factual situations may negate such a

possibility. It is in such factual situations that sustaining demurrers without leave to

amend is proper. However, absent such strong factual showings, all that is normally

required for a complaint to survive demurrers to the propriety of class litigation is that the

complaint allege facts that tend to show: (1) an ascertainable class of plaintiffs, and

(2) questions of law and fact which are common to the class. If the complaint is allowed

to survive the demurrer, then the judge may proceed with the suit, deferring his

determination of the propriety of class action until a time when he may better make the

decision.’ (Beckstead v. Superior Court [(1971)] 21 Cal.App.3d [780], 783-784,

paragraphing added, fn. omitted.)” (Prince v. CLS Transportation, Inc. (2004)

118 Cal.App.4th 1320, 1326.)

In the present case, the statute of limitations issues and related class definition

appear to turn on a variety of factual issues that were not properly before the trial court

on a demurrer. Because we conclude that the plaintiffs adequately pled delayed

discovery of their causes of action, we do not now reach the parties’ contentions

regarding class suitability, the statute of limitations, and accrual of the plaintiffs’ claims.

CalPERS is free to raise these arguments and others if plaintiffs move to certify a class at

a later stage.]]

[[ End nonpublished portion ]]

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DISPOSITION

In the Marzec action, the judgment is reversed as to the third and fourth causes of

action and the class definition, and is otherwise affirmed. In the Andert action, judgment

on the pleadings is reversed as to the third and fourth causes of action and the class

definition, and is otherwise affirmed. Each party shall bear its own costs on appeal.

CERTIFIED FOR PARTIAL PUBLICATION

EDMON, P. J.

We concur:

KITCHING, J.

ALDRICH, J.

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