Pub. Employees’ Ret. Sys. v. Santa Clara Valley Transp. Auth.

• Decision Date: 29 May 2018
• Docket Number: C083355,C083961
• Citation: 234 Cal.Rptr.3d 14,23 Cal.App.5th 1040
• Court: California Court of Appeals Court of Appeals
• Parties: PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, Plaintiff and Appellant, v. SANTA CLARA VALLEY TRANSPORTATION AUTHORITY, Defendant and Respondent. Public Employees’ Retirement System, Plaintiff and Appellant, v. Amalgamated Transit Union Local 1555, Defendant and Respondent.

23 Cal.App.5th 1040

234 Cal.Rptr.3d 14

PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, Plaintiff and Appellant,

v.SANTA CLARA VALLEY TRANSPORTATION AUTHORITY, Defendant and Respondent.

Public Employees’ Retirement System, Plaintiff and Appellant,

v.Amalgamated Transit Union Local 1555, Defendant and Respondent.

C083355

C083961

Court of Appeal, Third District, California.

Filed May 29, 2018

Xavier Becerra, Attorney General, Thomas S. Patterson and Marc LeForestier, Assistant Attorneys General, Tamar Pachter and Nelson R. Richards, Deputy Attorneys General, for Plaintiff and Appellant.

Robert Fabela and Richard North, for Defendant and Respondent Santa Clara Valley Transportation Authority.

Leonard Carder, Peter Saltzman, Kate Hallward, and Craig Schechter, for Defendant and Respondent Amalgamated Transit Union Local 1555.

BUTZ, J.

California’s Public Employees’ Retirement System (CalPERS) ( Gov. Code, § 20002 ),¹ as opposed to the board that administers the system (§ 9353), filed a complaint seeking declaratory relief regarding the proper interpretation of the effect of section 7522.02, subdivision (a)(3) (hereafter section 7522.02(a)(3) ) on the pension benefits of transit workers. The CalPERS executive office had announced its own interpretation, which resulted in over 400 pending administrative appeals. As representative parties, the CalPERS executive office named as defendants a transit agency (the Santa Clara Valley Transportation Authority (Santa Clara Transit) ) and an employee representative for a different Bay Area transit agency (the Amalgamated Transit Union Local 1555 (Local 1555) ), which had been supporting the arguments of their employees and members, and had filed administrative appeals of their own.

Santa Clara Transit filed a demurrer, which the trial court sustained, entering judgment in its behalf. Local 1555 then filed a motion for judgment on the pleadings, which the trial court granted, entering a separate judgment in its behalf. In each ruling, the trial court concluded that the CalPERS executive office was subject to the procedural prerequisite of the exhaustion of administrative remedies, as the issue was pending in the appeals before the CalPERS board, and the CalPERS executive office had not established any exception to exhaustion in its allegations. The CalPERS executive office separately appealed from each judgment. We have consolidated the appeals for purposes of consideration and argument.

The CalPERS executive office continues to assert it may bypass the process in CalPERS regulations for administrative appeals to the CalPERS board and proceed directly to the trial court to obtain a declaratory judgment on its interpretation of section 7522.02(a)(3). In its response to supplemental briefing that we requested, it also contends that it is not subject to the general rule that an action for declaratory relief is not appropriate for the review of administrative decisions in lieu of a petition for a writ of mandate. ( City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1466-1467, 176 Cal.Rptr.3d 729 ( City of Pasadena ).) Neither position is tenable. We shall affirm the judgments.

FACTUAL AND PROCEDURAL BACKGROUND

There is little we need to add to our introduction other than procedural details. As fascinating as the underlying substantive issue of pension benefits may be, it is not before us. We provide a quick précis in order to provide context for the dispute.

Effective January 1, 2013, the Legislature revised public employee pension benefits for new hires by enacting the California Public Employees’ Pension Reform Act of 2013 (PEPRA) (§ 7522 et seq.), generally reducing benefits under the existing structure in order to lower the cost of the pension system. (See State of California v. U.S. Dept. of Labor (E.D.Cal. 2016) 155 F.Supp.3d 1089, 1093 ( State of California ) ). We are not concerned with the details of the reform.

The federal government disputed the application of the PEPRA to transit workers as an interference with federal law, and sought to withhold transportation grants. ( State of California , supra , 155 F.Supp.3d at p. 1094.) In response, the Legislature enacted section 7522.02(a)(3) as an urgency measure in October 2013, exempting transit workers from the PEPRA until January 1, 2015, or until there was a federal district court ruling that the PEPRA did not interfere with federal law, whichever came first. (See Stats. 2013, ch. 527, §§ 1, 3.) The State of California also brought suit against the federal Department of Labor in a federal district court, obtaining summary judgment in its behalf in a decision filed on December 30, 2014. ( California v. U.S. Dept. of Labor (E.D.Cal. 2014) 76 F.Supp.3d 1125, 1148 ; see State of California , supra , 155 F.Supp.3d at p. 1094.)

Soon thereafter, the CalPERS executive office announced in a circular letter² dated February 25, 2015, that the exemption in section 7522.02(a)(3) had expired by its own terms. Hereafter, the CalPERS executive office would treat all transit workers hired between January 1, 2013, and December 29, 2014, as accruing benefits under the old system during that period, and thereafter accruing the new limited PEPRA pension benefits starting on December 30, 2014 (along with those hired on or after Dec. 30).

Not surprisingly, "[o]ver 400 of those employees then filed administrative appeals challenging [the] administrative action and interpretation of PEPRA. Several [employee representatives], including ... Local 1555, raised the same challenges ... on behalf of their members[, as well as assisting in their appeals]. [¶] [Santa Clara Transit] also filed an administrative appeal [in December 2015] on behalf of its employees" after the CalPERS executive office rejected its informal efforts to resolve the matter.

Although section 20134 accords the CalPERS board discretion to hold a hearing for the determination of any question regarding rights under the retirement system, the board has exercised its discretion to enact regulations that provide for an administrative appeal to the CalPERS board of the actions of its executive office ( Cal. Code Regs., tit. 2, §§ 555, 555.1 ), which specifically state in part, "Any applicant filing an appeal shall be entitled to a hearing." ( Cal. Code Regs., tit. 2, § 555.2.) The hearings are to be conducted in accordance with the Administrative Procedures Act before a hearing officer, who refers any proposed decision to the CalPERS board. ( Cal. Code Regs., tit. 2, § 555.4.) Nonetheless, the complaints do not indicate that a hearing or an appeal to the CalPERS board ever took place. Instead, the CalPERS executive office simply sought a declaration that its interpretation of the effect of the statutory temporary exemption was correct.

Santa Clara Transit demurred on the basis of a failure to exhaust the administrative remedy to which it was entitled under the CalPERS regulations. The trial court agreed. It concluded the CalPERS executive office could not disregard the CalPERS regulations giving an entitlement to an appeal to the CalPERS board, that exhaustion of administrative remedies is a doctrine equally applicable to an executive office of an agency, and that the CalPERS executive office had failed to establish that the CalPERS board would adhere to the executive office’s statutory interpretation. Local 1555 initially took a different tack, filing an answer. After Santa Clara Transit prevailed, Local 1555 amended its answer to assert the failure to exhaust administrative remedies and sought judgment on the pleadings on this basis. The trial court rejected the CalPERS executive office’s efforts to rely on federal law to persuade it to come to a different conclusion, and again noted that "[w]hile [the CalPERS] executive office announced [its] considered interpretation of § 75[2]2.02(a)(3), the administrative appeal is before [the CalPERS] board, and [the CalPERS executive office] has not positively stated that its board would not adopt an independent Administrative Law Judge’s Proposed Decision that refuted the position of [the CalPERS] executive office."

DISCUSSION

1.0 Declaratory Relief Is Not Available

In City of Pasadena , supra , 228 Cal.App.4th 1461, 176 Cal.Rptr.3d 729, the Department of Finance had made a final administrative determination regarding the municipality’s entitlement to property tax revenues for the payment of certain obligations; the municipality sought to challenge this determination in an action for declaratory relief. We held that the trial court erred in granting preliminary relief to the municipality because it was not entitled to any form of declaratory relief in this context, under the principle that declaratory relief is not an appropriate means of reviewing administrative determinations. ( Id. at p. 1466, 176 Cal.Rptr.3d 729.) We relied on authority that found declaratory relief inappropriate where it challenges an administrative agency’s application of legal principles to a party. ( State of California v. Superior Court (1974) 12 Cal.3d 237, 249, 115 Cal.Rptr. 497, 524 P.2d 1281 ; Tejon Real Estate, LLC v. City of Los Angeles (2014) 223 Cal.App.4th 149, 154-155, 166 Cal.Rptr.3d 837.)

Tracing this line of authority further back, we come to Walker v. Munro (1960) 178 Cal.App.2d 67, 2 Cal.Rptr. 737 ( Munro ), in which parties charged with violating alcohol regulations sought declaratory relief—in the midst of the enforcement proceedings —that the statutes and regulations were unconstitutional and could not be enforced against them. ( Id . at pp. 69-70, 2 Cal.Rptr. 737.) Finding that a failure to exhaust administrative remedies precluded declaratory relief, Munro stated, "The declaratory relief provisions do not independently empower the courts to stop or interfere with administrative proceedings by declaratory decree." ( Id . at p. 72, 2 Cal.Rptr. 737 ; accord, Imperial Mutual Ins. Co. v. Caminetti (1943) 59 Cal.App.2d 501, 505-506, 139 P.2d 691 ( Imperial Mutual ).) There is...