Sonoma County Ass'n of Retired Employees v. Sonoma County

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SONOMA COUNTY ASSOCIATION OF No. 10-17873

RETIRED EMPLOYEES,

Plaintiff-Appellant, D.C. No.

4:09-cv-04432-

v. CW

SONOMA COUNTY ,

Defendant-Appellee. OPINION

Appeal from the United States District Court

for the Northern District of California

Claudia A. Wilken, Chief District Judge, Presiding

Argued and Submitted

June 13, 2012—San Francisco, California

Filed February 25, 2013

Before: Proctor Hug, Jr., Johnnie B. Rawlinson,

and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Ikuta;

Partial Concurrence and Partial Dissent by Judge

Rawlinson

2 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .

SUMMARY*

Civil Rights/ Health Care

The panel vacated the district court’s dismissal of a

complaint brought by the Sonoma County Association of

Retired Employees alleging that the County of Sonoma had

breached its obligation to provide certain vested healthcare

benefits in perpetuity.

The Association alleged that although the County had not

expressly promised to provide these benefits, it had implicitly

done so. The panel held that in light of the California

Supreme Court’s recent decision in Retired Employees Ass’n

of Orange County, Inc. v. County of Orange (REAOC II), 266

P.3d 287, 289 (Cal. 2011), which recognized that a county

may form a contract with implied terms under specified

circumstances, the district court erred in dismissing the

Association’s complaint with prejudice. The panel held that

although the Association’s amended complaint failed to

plausibly allege the County created an implied contract by

ordinance or resolution, the district court erred by denying the

Association leave to amend on the ground that such

amendment would be futile. The panel remanded to the

district court for proceedings consistent with REAOC II.

Concurring in part and dissenting in part, Judge

Rawlinson agreed with the majority that the district court

properly dismissed the complaint for failure to state a claim.

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 3

She disagreed with the majority’s conclusion that the district

court abused its discretion in denying further leave to amend.

COUNSEL

Jeffrey Lewis, Lewis, Feinberg, Lee, Renaker & Jackson,

P.C., Oakland, California, for Plaintiff-Appellant.

Raymond F. Lynch, Hanson Bridgett LLP, San Francisco,

California, for Defendant-Appellee.

OPINION

IKUTA, Circuit Judge:

The Sonoma County Association of Retired Employees

(Association) sued Sonoma County, alleging that the County

had breached its obligation to provide certain vested

healthcare benefits in perpetuity. Although the County had

not expressly promised to provide these benefits, the

Association alleged that it had implicitly done so. The

California Supreme Court’s recent decision in Retired

Employees Ass’n of Orange County, Inc. v. County of Orange

(REAOC II) recognized that a county may form a contract

with implied terms under specified circumstances. 266 P.3d

287, 289 (Cal. 2011). In light of REAOC II, the district court

erred in dismissing the Association’s complaint with

prejudice.

4 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .

I

This case arises from the County’s efforts to reduce its

liability for its retired employees’ healthcare benefits, which

it has subsidized since at least 1964. In 2007, the County

became concerned about the rapidly rising costs of healthcare

benefits, which had doubled since 2002. In August 2008, the

County’s Board of Supervisors enacted a resolution to limit

the County’s healthcare benefit contributions to $500 per

month for retirees, with a five-year phase-in period. The

Association, representing retired County employees, filed suit

against the County in 2009 on the ground that the County’s

August 2008 resolution amounted to a breach of both express

and implied contracts, and raised numerous other claims

including breach of the covenant of good faith and fair

dealing, violations of the Contract Clauses of the California

and United States Constitutions, promissory estoppel, and

violation of due process.

The Association’s original complaint alleged that, in

connection with providing healthcare benefits for retirees

over the course of many decades, the County made two

different promises to the retirees. First, beginning in at least

1964, the County promised to pay “all or substantially all” of

the costs of post-retirement healthcare benefits for its retirees

and their dependents. Second, in 1985, the County entered

into a “tie agreement,” which promised that the County would

treat retirees and their dependents the same as it treated the

active management employees with respect to healthcare

benefits and the County’s payment of costs. The complaint

alleged that these promises, and the employees’ performance

of services in exchange for these promises, created a legally

binding contract. The Association further alleged that the

County intended these promises to create healthcare benefits

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 5

that would continue during the lives of the retirees and their

dependents.

In its May 14, 2010 order, the district court dismissed the

Association’s complaint with leave to amend. The district

court explained that as a matter of California law, oral

promises and other extrinsic evidence standing alone could

not contractually bind the County in the context of public

employment. Accordingly, the district court rejected the

Association’s claim that the County’s “set of promises over

the years . . . in writing, orally, and as applied through

practice” created an implied contract. Because the

Association had not identified resolutions or ordinances that

created an express contract for healthcare benefits, the district

court held that the Association’s good faith and fair dealing

claim, Contract Clauses claims, and due process claims also

failed. Finally, the district court rejected the complaint’s

promissory estoppel claim on the ground that the Association

could not have reasonably relied on the County’s implied

promises.

While this case was pending, another Ninth Circuit panel

considered a case raising similar issues. See Retired Emps.

Ass’n of Orange Cnty. Inc. v. Cnty. of Orange, 610 F.3d 1099

(9th Cir. 2010) (REAOC I). In that case, a group of retired

county employees sued the county for changing its long-

standing practice of subsidizing retiree healthcare benefits on

the ground that the county’s long-standing practice created an

implied contract. The district court in that case granted

summary judgment in favor of the county, because the county

“cannot be liable for any obligation that it did not enter

through explicit Board resolution.” Id. at 1101–02. Because

the question whether the retired employees and the county

had entered into an enforceable contract was a question of

6 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .

state law, the REAOC I panel certified the following question

to the California Supreme Court: “Whether, as a matter of

California law, a California county and its employees can

form an implied contract that confers vested rights to health

benefits on retired county employees.” Id. at 1101.

While the certified question from REAOC I was pending

before the California Supreme Court, the Association filed an

amended complaint in this case, asserting the same causes of

action as in the original complaint, but adding more facts and

attaching copies of the sixty-eight resolutions, memoranda of

understanding (MOUs), and ordinances on which it relied.

The Association also stated it would provide evidence of the

County’s intent to provide vested healthcare benefits through

testimony of the employees who drafted the County’s

resolutions and policies, and through a member of the Board

of Supervisors, who would testify as to the Board’s promises

and intent to provide benefits.

On November 23, 2010, the district court granted the

County’s motion to dismiss the Association’s amended

complaint, this time without leave to amend. The court noted

that none of the documents adduced by the Association in

connection with its complaint contained the County’s express

agreement to provide healthcare benefits to retirees in

perpetuity, which the court had previously held was necessary

to form a binding contract between the County and retirees in

this context. Given the Association’s failure on this second

try to provide any evidence of an express agreement, the

district court denied the Association leave to amend. In a

footnote, the court acknowledged the certified question in

REAOC I was pending before the California Supreme Court,

but did not consider it because both parties had indicated that

the certified issue was not relevant.

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 7

The Association appealed both the November 2010 order

and the May 2010 order, which became final and appealable

when the district court dismissed the case without leave to

amend. See Montes v. United States, 37 F.3d 1347, 1351 (9th

Cir. 1994).

II

While this appeal was pending, the California Supreme

Court issued an opinion responding to the certified question

posed by the Ninth Circuit in REAOC I. In REAOC II, the

court considered three different issues: (1) whether a county

government and its employees can form an implied contract

for compensation; (2) if such contracts are cognizable,

whether implied contracts can create irrevocable or “vested”

rights; and (3) if vested contractual rights for county

employees can be implied, whether such rights can include

healthcare benefits. See REAOC II, 266 P.3d at 291.

Turning to the first question, the court held that “a county

may be bound by an implied contract (or by implied terms of

a written contract), as long as there is no statutory prohibition

against such an agreement.” Id. at 294. The court decided

that it need not determine whether the county “may form an

implied contract with its employees on matters of

compensation” because the retirees took the position that they

had an express contract and were “seeking recognition only

of an implied term.” Id. at 295 (first emphasis added).

According to the court, implied terms “stand on equal footing

with express terms,” so long as they do not conflict with the

express terms. Id. at 290 (internal quotation marks omitted).

The court then considered the extent to which section

25300 of the California Government Code, which authorizes

8 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .

a public entity to enter into a compensation contract only by

ordinance or resolution, constituted a “statutory prohibition”

against implied agreements or implied terms in the public

employment context.1 See id. at 294. According to the court,

section 25300 did not completely prohibit implied agreements

or terms, because “contractual rights can be implied from

legislative enactments under limited circumstances.” Id. at

295. The court explained that an ordinance or resolution can

create a contract when the legislation’s text or the

“circumstances accompanying its passage” clearly evince an

intent to contract, as opposed to an intent to make policy. Id.

at 296. Although the public entity’s intent to create a contract

must be clear, the intent need not be express. Id. The

California Supreme Court gave some examples of when

legislation may create a contract. For example, if “the

legislation is itself the ratification or approval of a contract,

the intent to make a contract is clearly shown.” Id.

Alternatively, legislation creates a contract if it “contains an

unambiguous element of exchange of consideration by a

private party for consideration offered by the state.” Id.

(citing Cal. Teachers Ass’n v. Cory, 155 Cal. App. 3d 494,

505 (Cal. Ct. App. 1984)).

Having concluded that a court can infer contractual rights

from legislation when the legislature’s intent is clear, the

court then considered whether it was “impermissible to infer

vested contractual rights.” Id. at 297. The court determined

1

Cal. Gov’t Code § 25300 states, in pertinent part: “The board of

supervisors shall prescribe the compensation of all county officers and

shall provide for the number, compensation, tenure, appointment and

conditions of employment of county employees. Except as otherwise

required by Section 1 or 4 of Article XI of the California Constitution,

such action may be taken by resolution of the board of supervisors as well

as by ordinance.”

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 9

that this too was a matter of the parties’ intent. Id. at 298.

“[A]s with any contractual obligation that would bind one

party for a period extending far beyond the term of the

contract of employment, implied rights to vested benefits

should not be inferred without a clear basis in the contract or

convincing extrinsic evidence.” Id. at 299. Therefore,

plaintiffs have a particularly “heavy burden” to demonstrate

“the legislative body’s intent to create vested rights.” Id. at

298 (internal quotation marks omitted).

Finally, the court considered the County’s arguments that

various other statutes prohibited public entities from

including implied terms relating to healthcare benefits in

employment contracts. The court rejected each of these

arguments based on a close reading of the specific terms of

the statute. See id. at 299–301.

The California Supreme Court concluded that “under

California law, a vested right to health benefits for retired

county employees can be implied under certain circumstances

from a county ordinance or resolution.” Id. at 301. However,

the court declined to reach the merits of the case, stating that

“[w]hether those circumstances exist in this case is beyond

the scope of the question posed to us by the Ninth Circuit.”

Id.

III

We now consider the Association’s appeal from the

dismissal of its complaint in light of the guidance provided by

REAOC II.2 “We review de novo the dismissal of a

complaint for failure to state a claim.” Telesaurus VPC, LLC

2

The parties have provided us with supplemental briefing on this issue.

10 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). While a

complaint does not require “detailed factual allegations,” it

“must contain sufficient factual matter, accepted as true, to

state a claim to relief that is plausible on its face.” Ashcroft

v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks

omitted). The plausibility standard “is not akin to a

‘probability requirement,’ but it asks for more than a sheer

possibility that a defendant” is liable. Id. “A claim has facial

plausibility when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id.

A

Here, in order to survive a motion to dismiss, the

Association’s complaint must plausibly allege that the

County: (1) entered into a contract that included implied

terms providing healthcare benefits to retirees that vested for

perpetuity; and (2) created that contract by ordinance or

resolution. See REAOC II, 266 P.3d at 289.

The Association met the first requirement by plausibly

alleging that: (1) the County entered into a contract; (2) the

contract provided healthcare benefits to retirees; and (3) the

contract included an implied term that the benefits were

vested for perpetuity. First, the complaint alleges that the

County “conveyed its promises and intent to continuously and

consistently provide vested retiree health benefits” in “Board-

ratified Memoranda of Understanding,” among other

documents. There is no doubt that the MOUs are contracts.

As the California Supreme Court previously explained, “all

modern California decisions treat labor-management

agreements whether in public employment or private as

enforceable contracts which should be interpreted to execute

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 11

the mutual intent and purpose of the parties.” Glendale City

Emps. Ass’n v. City of Glendale, 540 P.2d 609, 616 (Cal.

1975); see also REAOC II, 266 P.3d at 293 (Where a county

“negotiate[s] and approve[s] MOUs with its employee

bargaining units . . . such agreements are binding and

constitutionally protected.” (internal quotation marks

omitted)).

The MOUs submitted with the amended complaint

support the Association’s allegation that the MOUs promised

healthcare benefits. Specifically, the documents state, among

other things, that the County will make contributions toward

a health plan premium for retirees hired after 1990 who have

worked for the County for at least ten years, and have

contributed to the County’s retirement system for the same

length of time.3

The Association’s amended complaint also plausibly

alleges that the County intended these healthcare benefits to

vest for perpetuity. The complaint states that the County

conveyed this intent “in writing, orally, by implication, and

through practice.” The Association supported this allegation

with factual matter, including: (1) MOUs, resolutions, and

other documents establishing the County’s long-standing

course of conduct; (2) allegations that former employees who

drafted these documents would testify in support of the

Association’s position regarding the “background, purpose,

and intent” of the documents; and (3) statements that at least

3

A provision in a typical M OU states: “Upon meeting [the conditions

that the employee work and contribute for ten years] the County shall

contribute for the retiree only the same amount towards a health plan

premium as it contributes to an active single employee in the same manner

and on the same basis as is done at the time for other retirees who were

hired or rehired before July 1, 1990.”

12 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

one former Board member would testify as to the County’s

intent that the benefits vest in perpetuity.4

Taken as a whole, the amended complaint includes factual

content that is non-conclusory, more than “merely consistent”

with the County’s liability, and substantial enough to allow a

court, accepting the allegations as true, to make a reasonable

inference that the County implicitly bound itself to provide

healthcare benefits to its retirees in perpetuity. See Iqbal,

556 U.S. at 678 (internal quotation marks omitted).

But this is not enough to survive a motion to dismiss: the

complaint must also plausibly point to a resolution or

ordinance that created the contract implying these benefits.

See REAOC II, 266 P.3d at 294. Specifically, the County’s

resolutions and ordinances may create a contract if the text

and the circumstances of their passage “clearly evince” an

intent to grant vested benefits, id. at 296 (internal quotation

marks omitted), or if they “contain[ ] an unambiguous

4

The dissent’s argument that the Association cannot rely on testimony

from County Board members and administrators because such testimony

is not a “cognizable substitute” for proof that a contract was created by “a

resolution or ordinance formally enacted by a majority of the Board of

Supervisors,” dis. op. at 22 (quoting Harris v. Cnty. of Orange, 682 F.3d

1126, 1134 (9th Cir. 2012) (emphasis omitted)) conflates two different

issues. Although REAOC II reiterated that the compensation of public

employees must be addressed by resolution or ordinance, see 266 P.3d at

294 (citing Cal. Gov’t Code § 25300), in those circumstances where the

County intended to create a contractual obligation by resolution or

ordinance, such a contract may include implied terms that can be inferred

from “[e]vidence derived from experience and practice.” Id. at 290

(internal quotation marks omitted). Thus, if the Association plausibly

alleges that the County created a contract by means of a formally enacted

resolution which ratified an MOU, for instance, then the Association may

introduce evidence of that contract’s implied terms, including testimony

regarding the County’s intent.

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 13

element of exchange of consideration by a private party for

consideration offered by the state.” Id. In the alternative, the

County’s intent to make a contract by legislation “is clearly

shown” when a resolution or ordinance ratifies or approves

the contract. Id.

But here the amended complaint does not plausibly allege

either alternative. The Association does not make allegations

sufficient to establish that the resolutions, ordinances, and

MOUs were the product of a bargained-for exchange of

consideration. The complaint’s statement that the retirees

performed services as employees in exchange for the

County’s promise to confer vested healthcare benefits upon

them is the sort of legal conclusion unsupported by factual

matter that the Supreme Court rejected as inadequate in Iqbal.

See 556 U.S. at 678. Moreover, while the complaint alleged

that the MOUs were “Board-ratified,” it did not allege that

the Board ratified the MOUs by resolution or ordinance; nor

did the Association submit copies of any such resolutions or

ordinances with the amended complaint.5 Given REAOC II’s

focus on the statutory requirement that compensation of

county employees must be addressed in an ordinance or

resolution, see 266 P.3d. at 295 (citing Cal. Gov’t Code

§ 25300), the complaint’s passing references to Board

ratification are an insufficient basis for a court to infer that

the County enacted a resolution or ordinance that ratified the

relevant MOUs. Accordingly, the district court did not err in

5

W hile Board ratification may be equivalent to a Board resolution, see

Dimon v. Cnty. of Los Angeles, 83 Cal. Rptr. 3d 576, 583–84 (Cal. Ct.

App. 2008) (holding that a resolution “is the mere expression of the

opinion of the legislative body concerning some administrative matter for

the disposition of which it provides,” and thus a board’s oral approval of

an MOU was “in effect, done by resolution”), the Association has not

made this argument, and therefore we do not reach it here.

14 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

concluding that the amended complaint failed to state a cause

of action on this issue.

Nevertheless, in light of REAOC II, we cannot agree with

the district court’s decision to deny the Association leave to

amend on the ground that such amendment would be futile.

In general, a court should liberally allow a party to amend its

pleading. See Fed. R. Civ. P. 15(a); see also Owens v. Kaiser

Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001)

(“A district court shall grant leave to amend freely when

justice so requires,” and “this policy is to be applied with

extreme liberality.”)(internal quotation marks and citations

omitted). Courts may decline to grant leave to amend only if

there is strong evidence of “undue delay, bad faith or dilatory

motive on the part of the movant, repeated failure to cure

deficiencies by amendments previously allowed, undue

prejudice to the opposing party by virtue of allowance of the

amendment, [or] futility of amendment, etc.” Foman v.

Davis, 371 U.S. 178, 182 (1962). “[T]he consideration of

prejudice to the opposing party carries the greatest weight.”

Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052

(9th Cir. 2003).

These considerations weigh in favor of granting leave to

amend here. We may grant leave to amend in situations

where the controlling precedents changed midway through

the litigation. See, e.g., Moss v. United States Secret Service,

572 F.3d 962, 972 (9th Cir. 2009) (granting plaintiffs leave to

amend their complaint in light of Bell Atlantic Corp. v.

Twombly, 550 U.S. 544 (2007), which was decided after the

plaintiffs brought suit). As a general rule, “[d]ismissal

without leave to amend is improper unless it is clear, upon de

novo review, that the complaint could not be saved by any

amendment.” Polich v. Burlington Northern, Inc., 942 F.2d

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 15

1467, 1472 (9th Cir. 1991). In light of REAOC II, the

Association may be able to amend its complaint to state a

claim that will survive a motion to dismiss, and so denial of

leave to amend on the ground of futility is improper.6

Nor do any of the other Foman factors weigh against

granting leave to amend. Although this litigation has been

ongoing for several years, “[t]he mere fact that an amendment

is offered late in the case . . . is not enough to bar it.” United

States v. Webb, 655 F.2d 977, 980 (9th Cir. 1981) (quoting

3 Moore’s Federal Practice § 15.08(4) at 15-102). The

County would not be prejudiced, because it should be “fully

prepared to litigate the substantive issues” of the claim, given

that both the theory and the operative facts of the claim

remain the same. Hurn v. Ret. Fund Trust of Plumbing,

Heating & Piping Indus. of S. Cal., 648 F.2d 1252, 1254 (9th

Cir. 1981). Moreover, there is no evidence or allegation of

“undue delay, bad faith or dilatory motive” over the course of

these proceedings. Foman, 371 U.S. at 182. Accordingly, we

conclude that the Association should be given a second

chance to amend its complaint in light of REAOC II.

6

The dissent’s argument that amendment would be futile because the

Association already had an opportunity to amend and failed to properly

allege a contract for healthcare benefits, see dis. op. at 23, does not

account for REAOC II’s significant clarification of the circumstances

when a public employee may enforce implied terms in an express contract

for healthcare benefits. Indeed, our ruling today mirrors our ruling in

Harris, where we remanded the retirees’ claims that certain healthcare

benefits were an implied term of the county’s MOUs so that the district

court could assess those claims in light of REAOC II. See 682 F.3d at

1130, 1134.

16 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

B

The County raises two additional arguments which merit

some discussion. First, the County argues that the Association

waived its argument about the existence of implied terms

because it informed the district court that the certified

question in REAOC II was not relevant to this case, and did

not raise this argument to the district court after filing its

amended complaint. We disagree. As the Association

correctly points out, our certified question to the California

Supreme Court asked only whether employees could form an

implied contract for healthcare benefits. See REAOC I,

610 F.3d at 1101. Based on this question, the Association

could reasonably conclude that REAOC II would not address

implied terms of express contracts, and therefore the opinion

would not be relevant to the district court’s determination.

The Association’s erroneous prediction does not preclude

review here, given that the Association’s complaint preserved

its claim that the County entered into contracts with implied

terms. Cf. Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270

(9th Cir. 2002) (no invited error where party cited the wrong

law as controlling but otherwise discussed applicable law);

Portland Gen. Elec. Co. v. U.S. Bank Trust Nat’l Ass’n as Tr.

for Trust No. 1, 218 F.3d 1085, 1089 (9th Cir. 2000) (finding

that a question of law was preserved where parties had fully

briefed the issue to the court, even though one party made an

error of legal interpretation).

Further, the Association did not waive its argument

regarding implied contract terms by failing to raise it again to

the district court during the November 23, 2010 proceedings.

The district court had rejected the Association’s implied

contract theory in its May 2010 ruling dismissing the original

complaint. The Association’s appeal of the May 2010 order

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 17

is presently before this court, and the Association’s failure to

raise the same argument a second time does not constitute a

waiver. See Montes, 37 F.3d at 1351 (appellant could

challenge first judgment on appeal following second and final

judgment).

Second, the County argues that our recent decision in

Harris v. County of Orange compels us to conclude that

notwithstanding REAOC II, a plaintiff cannot claim vested

benefits unless it can prove the existence of a contract with

express terms. See 682 F.3d 1126, 1135 (9th Cir. 2012). The

County is mistaken. The retirees in Harris asserted two

claims, one based on an implied promise to subsidize health

insurance premiums for its retired employees via a pooling

arrangement, and the other based on the county’s express

promise in collective bargaining agreements to provide a

monthly grant toward the cost of health insurance. See id. at

1129. Consistent with REAOC II, Harris remanded the

claims based on the implied promise to the district court so

that it could “assess those claims in light of the California

Supreme Court’s opinion, and coordinate those claims with

the REAOC litigation.” Id. at 1134. And, because the retirees

had not brought all the relevant express terms before the

court, Harris dismissed those claims with leave to amend. Id.

Harris did not purport to rule on a theory premised on

implied terms or to interpret or apply REAOC II in dismissing

the claims based on the express written contract; therefore, it

does not affect our analysis here.7

7

The dissent’s assertion that Harris rejected the argument raised by the

Association here is incorrect. See dis. op. at 21–22. In Harris, we

rejected the retirees’ argument that certain MOUs expressly gave retirees

a vested right to healthcare benefits in perpetuity, and noted that the

MOUs at issue established a specific end date to healthcare benefits, see

682 F.3d at 1135 & n.4 (“[O]ne MOU states: ‘This Memorandum of

18 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

IV

The district court did not have the benefit of REAOC II,

but in light of its clarification that a public entity in California

can be bound by an implied term in a written contract under

specified circumstances, we cannot say that the Association’s

amendment of its complaint a second time would be futile.

At a minimum, the Association may be able to plausibly

allege that the County used resolutions or ordinances to ratify

or approve MOUs that created contracts for healthcare

benefits and included implied terms vesting those benefits for

perpetuity. Accordingly, it was error to dismiss the

Association’s complaint without leave to amend.

Nevertheless, even if the Association can make

allegations that survive a motion to dismiss, REAOC II also

clarified that a plaintiff claiming the existence of a contract

with implied terms carries the heavy burden of establishing,

from statutory language or relevant circumstances, that the

public entity intended to create a compensation contract by

ordinance or resolution. It also bears the equally heavy

burden of establishing that implied terms in that contract

provide vested healthcare benefits. See 266 P.3d at 295 (“[I]t

Understanding sets forth the terms of agreement reached . . . for the period

beginning July 23, 1993 through June 23, 1994.’”). In response to the

retirees’ argument that “the durational clause in the MOUs is not an

indication of when the terms of the MOUs expire,” and therefore would

not preclude an inference that the county intended the healthcare benefits

to continue in perpetuity, we noted that even if the retirees were correct,

“the durational clause surely cannot be the source of a claim that the

benefits survive indefinitely.” Id. at 1135. Here, by contrast, the express

terms of the MOUs and resolutions at issue do not establish a specific end

date to healthcare benefits, and the Association alleges that the right to

healthcare benefits in perpetuity is an implied term of a contract, not an

express contractual right.

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 19

is presumed that a statutory scheme is not intended to create

private contractual or vested rights and a person who asserts

the creation of a contract with the state has the burden of

overcoming that presumption.” (internal citations and

quotation marks omitted)). Further, a court considering such

a claim must do so cautiously, and identify “a clear basis in

the contract or convincing extrinsic evidence” establishing

that a contract exists and clearly delineating the contractual

obligation at issue. Id. at 299. We therefore remand to the

district court for proceedings consistent with REAOC II.8

VACATED AND REMANDED.

RAWLINSON, Circuit Judge, concurring in part and

dissenting in part:

I agree with the majority that the district court properly

dismissed the Complaint in this case for failure to state a

claim. However, I disagree that the district court abused its

discretion in denying further leave to amend.

Preliminarily, I do not share the majority’s view that the

Plaintiff plausibly pled a cause of action predicated on an

express contract between the employee association and

Sonoma County, or that the County impliedly agreed to

provide healthcare benefits to retirees into perpetuity. See

8

W e grant the Association’s Motion To Take Judicial notice of the

Proposed Decision of the Public Employment Relations Board decision in

SEIU, Local 1021 v. Cnty. of Sonoma, Case No. SF-CE-509-M and its

M otion To Take Judicial Notice of Legislative History. W e deny the

Association’s M otion to Remand to District Court, its Motion to Expedite,

and its Motion to Supplement the Record as moot in light of our opinion.

20 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

Majority Opinion, p. 7 (recognizing that the Plaintiff sought

relief predicated on the existence of an express contract); see

also Retired Employees Assn. of Orange County, Inc. v.

County of Orange (REAOC II), 266 P.3d 287, 295 (Cal. 2011)

(same).

In its opposition to Sonoma County’s Motion to Dismiss

its First Amended Complaint, Plaintiff represented to the

court that no implied contract was at issue. Likewise, in a

motion memo filed before this court following the REAOC II

decision, the Plaintiff characterized its Complaint as alleging

that Sonoma County’s promise to provide healthcare benefits

was an implied term of an express contract, not a purely

implied contract.

Plaintiff submitted three types of resolutions to support its

allegations that an express contract existed between the

employee association and Sonoma County. The first type of

submitted resolution contains “whereas” clauses generally

recognizing the existence of healthcare benefits for retirees.

The second type of submitted resolution contains “whereas”

clauses recognizing that the County is obligated to pay the

majority of its retirees’ medical insurance premiums. The

third type of submitted resolution describes the arrangement

providing for “tying” of retiree healthcare benefits to the

benefits received by active employees.

I think it important to keep in mind that under California

law, “[a] resolution by a county board does not only–or even

primarily–establish contract rights. . . .” Id. With that precept

in mind, our “judicial determination whether a particular

resolution was intended to create private contractual or vested

rights or merely to declare a policy to be pursued until the

legislative body shall ordain otherwise requires sensitivity to

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 21

the elementary proposition that the principal function of a

legislature is not to make contracts, but to make laws . . .” Id.

(internal quotation marks omitted). Accordingly, “it is

presumed that a statutory scheme is not intended to create

private contractual or vested rights and a person who asserts

the creation of a contract with the state has the burden of

overcoming that presumption.” Id. (citation omitted).

The whereas clauses relied upon by Plaintiff do not

plausibly overcome the presumption against the creation of a

contract through legislative action. Indeed, a recital inserted

into a document to refer to something that has already

occurred does not “create[] legal rights and obligations . . .”

Emeryville Redevelopment v. Harcros Pigments, Inc.,

101 Cal. App. 4th 1083, 1101 (2002). Rather, such recitals

“are given limited effect even as between the parties.” Id.

(footnote reference omitted).

The resolutions provided by Plaintiff describe the

expenditure of funds to provide healthcare benefits for current

employees and retirees. Instead of reflecting the existence of

an express contract, the language of the resolutions “declare

a policy to be pursued until the legislative body shall ordain

otherwise . . .” REAOC II, 266 P.3d at 295.

For similar reasons, the Memoranda of Understanding

(MOUs) cannot overcome the presumption against inferring

an express contract on the part of the government to provide

healthcare benefits for retirees in perpetuity. Importantly,

Plaintiff acknowledges the lack of “explicit promises that

benefits will be paid in perpetuity.” Instead, Plaintiff relies

on the absence of durational language in the MOUs to infer

a commitment for the payment of lifetime benefits. However,

we rejected this very argument in Harris v. County of

22 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .

Orange, 682 F.3d 1126, 1135 (9th Cir. 2012) (“[T]he

durational clause surely cannot be the source of a claim that

the benefits survive indefinitely.”). Rather, the existence of

a durational clause itself plainly negates the premise of

perpetual duration.

Finally, Plaintiff’s anticipated reliance on testimony from

County Board members and County administrators would be

futile. “Under California law, in the public employment

context, a contract with employees must be created by a

resolution or ordinance formally enacted by a majority of the

Board of Supervisors.” Id. at 1134 (citations omitted)

(emphasis added). Anecdotal evidence from county

administrators and board members is no cognizable

substitute. See 4 McQuillin Municipal Corporations § 13.1

(3d ed. 2012) (“A public corporation may only act as a body,

properly convened and functioning as such; separate

individual action of its members is ineffectual. . . .”) (footnote

reference omitted); see also Cook v. City of Addison,

656 S.W.2d 650, 657 (Tex. Ct. App. 1983) (“Statements by

individual members of a council or board are not binding on

a governmental body which may act only in its official

capacity. . . .”) (citations omitted); Minnesota Cent. R.R. Co.

v. MCI Telecomms. Corp., 595 N.W. 2d 533, 537 (Minn. Ct.

App. 1999) (“A governmental entity can only act through the

official action of its board or other governing body. . . .”)

(citation omitted).

Unlike the plaintiffs in Harris, Plaintiff has been given

the opportunity to provide–and has provided–Resolutions and

MOUs to support the allegations in its First Amended

Complaint. As the majority acknowledges, the submitted

Resolutions and MOUs do not support a plausible allegation

S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 23

that the County approved healthcare benefits for retirees in

perpetuity.

Because Plaintiff has been given the opportunity to amend

its complaint and to provide the Resolutions and MOUs that

assertedly set forth the healthcare benefits in question, and

because those Resolutions and MOUs do not support a

plausible allegation to that effect as required by Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009), Plaintiff’s “complaint could

not be saved by amendment.” Harris, 682 F.3d at 1131

(citation omitted); cf. id. at 1135 (granting leave to amend the

Complaint “to set out specifically the terms of those MOUs

on which their claim is predicated”). I am of the view that the

district court acted within its discretion when it denied further

leave to amend the complaint. See Gardner v. Martino,

563 F.3d 981, 990 (9th Cir. 2009) (“A district court does not

err in denying leave to amend where the amendment would

be futile. . . .”) (citation omitted). I respectfully dissent from

the majority’s contrary conclusion.