Baxter v. Cal. State Teachers' Ret. Sys., H042680

Citation227 Cal.Rptr.3d 37,18 Cal.App.5th 340
Decision Date12 December 2017
Docket NumberH042680
CourtCalifornia Court of Appeals
Parties William BAXTER et al., Plaintiffs and Respondents, v. CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM, Defendant and Appellant.

Robert J. Stumpf, Jr., Sheppard, Mullin, Richter & Hampton, LLP for Appellant California State Teachers' Retirement System

Sergio H. Parra, L+G, LLP for Respondents William Baxter et al.


Eleven retired teachers (Teachers) who had been employed in the Salinas Unified High School District (District), disputed attempts by appellant California State Teachers' Retirement System (CalSTRS) to recoup retirement benefit overpayments. The overpayments were the result of a years-long miscalculation by the District of the monthly retirement benefits to which the Teachers were entitled. The parties do not dispute that the District miscalculated Teachers' monthly benefit amounts. But Teachers contend that the statute of limitations bars CalSTRS's efforts to recoup prior overpayments and to reduce future monthly benefits to the proper amounts.

The dispute stems back to 1999, when the District and the Teachers' union entered into a collective bargaining agreement that purported to create a separate class of employees for teachers who elected to work an extra (sixth) period. Some years later—on August 18, 2005, after three Teachers had retired—a District employee sent a memorandum to the Monterey County Office of Education (MCOE), which arguably alerted MCOE to the potential overpayment of retirement benefits to teachers in the District who had worked a sixth period. In December 2008, CalSTRS was advised by its outside auditing firm that Teachers had been overpaid for several years due to the District's improper inclusion of certain earnings in the calculation of their monthly benefits. In July 2010, CalSTRS directed the District to correct its calculations and remit prior overpayment amounts to CalSTRS. Teachers and the District appealed the audit findings of CalSTRS and requested an administrative hearing. In April 2012, before any such hearing, CalSTRS began reducing Teachers' monthly payments.

In February 2013, an administrative law judge (ALJ) rejected the challenges of Teachers and the District, upholding CalSTRS's conclusion that Teachers had been overpaid in the past and that their monthly benefits should be reduced to reflect the proper amounts going forward and should reflect deductions for prior overpayments. The ALJ rejected the statute of limitations defense asserted by Teachers and the District, i.e., that CalSTRS's efforts to recoup prior overpayments and reduce future benefits were time-barred. The Appeals Committee of CalSTRS (Committee), which reviewed the ALJ's order, ultimately rendered a decision in CalSTRS's favor. Teachers successfully brought a petition for peremptory writ of administrative mandamus in the superior court compelling CalSTRS to resume paying them at the original monthly amounts. The trial court found that CalSTRS was barred by the applicable statute of limitations from either recouping previous overpayments or reducing future payments to reflect the allegedly correct amount of monthly benefits.

In this appeal, we interpret certain provisions of Education Code section 220081 —a statute that has not been the subject of any prior appellate decisions. Under section 22008, subdivision (c) ( § 22008(c) ), the three-year statute of limitations applicable for CalSTRS to bring an action to recoup the overpayments commenced with its "discovery of the incorrect payment." We conclude, contrary to the trial court's decision, that "discovery" means the date CalSTRS actually discovered, or in the exercise of reasonable diligence should have discovered, the incorrect payment. We hold that August 18, 2005, the date of the District's memorandum to the MCOE, was the correct accrual date of the statute of limitations here because the memorandum gave CalSTRS (through its ostensible agent, MCOE) inquiry notice of the overpayment issue.

We also address what action by CalSTRS constituted commencement of an "action" for purposes of determining whether the three-year statute of limitations under section 22008, subdivision (a) ( § 22008(a) ) was satisfied. We conclude that, contrary to the trial court's decision, the action was commenced on July 6, 2012, when CalSTRS filed the statement of issues to initiate the administrative proceeding.

The trial court incorrectly concluded that CalSTRS's action to rectify the error for all monthly payments, past and future, was time-barred. Although the trial court correctly found that CalSTRS had not satisfied the three-year statute of limitations because it had commenced the action more than three years after its claim accrued, under the continuous accrual theory, the statute of limitations for periodic payments such as Teachers' monthly retirement benefits here commenced with the due date of each payment. Therefore, only payments due more than three years prior to CalSTRS's commencement of the action on July 6, 2012, were subject to Teachers' statute of limitations defense. Accordingly, we will reverse the judgment and remand the matter for further proceedings.

I. Factual Background2

Teachers3 are 11 former teachers who taught within the District before retiring and becoming members of CalSTRS. CalSTRS is the state agency responsible for managing contributions made by employees and member school districts to the State Teachers' Retirement Fund. (See § 22000 et seq.) Schools within the District utilized a six period schedule. Teachers within the District typically taught five of those periods and used the additional period to prepare prospective lesson plans. Some of them, however, including Teachers, agreed to teach during their sixth period time for additional compensation, and to shift their preparation time to before or after the regular school day. Teachers believed that this additional compensation would be credited toward their retirement plan, the so-called "Defined Benefit" plan administered by CalSTRS.

Teachers' understanding stemmed, in part, from the District's belief that such sixth period compensation was creditable. On September 29, 1999, the District and the Salinas Valley Federation of Teachers ("SVFT") entered into a tentative collective bargaining agreement for the 1998-1999 and 1999-2000 school years. That agreement included an additional schedule for teachers who taught a sixth period, and changed the definition of a normal workday to include the extra period for all sixth period teachers. Each subsequent iteration of the collective bargaining agreement "contained provisions defining the sixth period teachers as a separate class of employees and the district has developed two distinct salary schedules that reflect the compensation paid to the two classes of certificated employees."

From September 29, 2008, until October 1, 2008, Mayer Hoffman McCann P.C. ("MHM"), an accounting firm commissioned by CalSTRS, performed an audit of District records. CalSTRS received the auditor's findings on December 1, 2008. The audit findings revealed the District's practice of coding Teachers' sixth period earnings as creditable was improper. CalSTRS issued a draft audit report on May 27, 2010, adopting MHM's conclusion that the District had incorrectly coded Teachers' sixth period earnings, causing Teachers to receive a larger monthly retirement benefit than that to which they were entitled.4

CalSTRS issued its final audit report on July 30, 2010, upholding the draft report's finding. The audit concluded with two corrective orders. First, CalSTRS demanded that, within 60 days, the District submit corrections to CalSTRS to reverse the improperly credited compensation. Once the District submitted corrections, CalSTRS would recalculate the relevant retired teachers' retirement allowances based on the correct final compensation and adjustment notification letters would be sent to affected teachers. Second, the District was ordered to "remit the total overpayments to CalSTRS for the retired members."

The District failed to either submit corrections or remit the amount of the overpayments to CalSTRS. Consequently, on March 2, 2012, CalSTRS sent letters notifying each of the Teachers that, because the District had failed to comply with the corrective orders, CalSTRS would begin reducing Teachers' respective monthly retirement benefit to the correct amount, effective April 1, 2012. In addition, Teachers' respective monthly payment was reduced by 5%, the statutory limit, to repay CalSTRS for the overpayments made to date. (See § 24617.)5

Teachers appealed the final audit findings on or before December 3, 2010. CalSTRS filed a statement of issues with the Office of Administrative Hearings on July 6, 2012.6 An administrative hearing was conducted between February 11-15, 2013. All parties appeared. On July 18, 2013, the administrative law judge ("ALJ") issued a proposed decision. The ALJ found in favor of CalSTRS, stated that the District had erred, and held that the District was responsible for reimbursing CalSTRS for the District's reporting errors. On September 9, 2013, the Committee opted to reject the proposed decision, solicit additional briefing from all parties, and reconsider the administrative record and existing evidence. On January 23, 2014, the Committee issued a decision in favor of CalSTRS.

II. Procedural History

Following the entry of the Committee's decision, on March 24, 2014, Teachers filed a petition for a peremptory writ of administrative mandamus under Code of Civil Procedure section 1094.5, naming CalSTRS as respondent and the District as real party in interest. Teachers' arguments included the assertion that insufficient evidence supported the Committee's decision. They sought a writ of mandamus requiring CalSTRS to (1) resume paying them at the monthly benefit levels existing before April 1,...

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