Hipsher v. L. A. Cnty. Emps. Ret. Ass'n

• Decision Date: 19 June 2018
• Docket Number: B276486
• Court: California Court of Appeals Court of Appeals
• Parties: Tod HIPSHER, Plaintiff and Appellant, v. LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION et al., Defendants and Respondents, County of Los Angeles, Real Party in Interest and Appellant.

24 Cal.App.5th 740

234 Cal.Rptr.3d 564

Tod HIPSHER, Plaintiff and Appellant,

v.LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION et al., Defendants and Respondents,County of Los Angeles, Real Party in Interest and Appellant.

B276486

Court of Appeal, Second District, Division 4, California.

Filed June 19, 2018

As Modified July 16, 2018

Rains Lucia Stern St. Phalle & Silver, Stephen H. Silver and Jacob A. Kalinski, Santa Monica, for Plaintiff and Appellant, Tod Hipsher.

Liebert Cassidy Whitmore, Steven M. Berliner, Joung H. Yim and Christopher S. Frederick, Los Angeles, for Real Party in Interest and Appellant, County of Los Angeles.

Steven P. Rice, Johanna M. Fontenot and Michel D. Herrera, for Defendant and Respondent, Los Angeles County Employees Retirement Association.

Xavier Becerra, Attorney General, Thomas Patterson, Assistant Attorney General, Constance L. LeLouis, Deputy Attorney General and Anthony P. O'Brien, Deputy Attorney General, for Defendant and Respondent, the State of California.

EPSTEIN, P.J.

The Public Employees' Pension Reform Act of 2013 ( Gov. Code, § 7522 et seq. [PEPRA] )¹ was enacted, in part, to curb abuses in public pensions systems throughout the state. ( Alameda County Deputy Sheriff's Assn . v. Alameda County Employees' Retirement Assn . (2018) 19 Cal.App.5th 61, 75, 227 Cal.Rptr.3d 787 ( Alameda ), review granted Mar. 28, 2018, S247095.) Section 7522.72 provides a mechanism whereby a public pensioner forfeits a portion of his or her retirement benefits following a conviction of a felony offense that occurred in the performance of his or her official duties.²

Shortly after appellant Tod Hipsher retired from the Los Angeles County Fire Department, he was convicted of a federal felony for directing an offshore gambling operation ( 18 U.S.C. § 1955 ).³ Respondent, the Los Angeles County Employees Retirement Association (LACERA), subsequently reduced Hipsher's vested retirement benefits based on the determination by the County of Los Angeles (County) that his gambling conduct was committed in the scope of his official duties (§ 7522.72). Hipsher challenged LACERA's forfeiture determination by a petition for writ of mandate and a complaint seeking declaratory relief. The trial court entered a mixed judgment. It issued a peremptory writ of mandate directing the County to afford adequate due process protections before reducing Hipsher's retirement benefits, while finding in favor of the defendants with respect to Hipsher's cause of action for declaratory relief.

Hipsher contends section 7522.72 is unconstitutional as applied to him because it impaired his contractual right to his vested pension, and is an unlawful ex post facto law. The County disagrees and contends it owes Hipsher no additional due process and is not bound by the trial court judgment because it was not named as a respondent in the peremptory writ.

We conclude section 7522.72 is constitutionally sound, but that LACERA, not the County, bears the burden to afford Hipsher the requisite due process protections in determining whether his conviction falls within the scope of the statute. Accordingly, we modify the judgment to require LACERA to provide the requisite due process, while affirming the remainder of the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Hipsher was hired as a firefighter with the Los Angeles Fire Department in 1983. Starting around 2001, he began conducting an illegal gambling operation in Orange and Los Angeles Counties, routing customer wages and profits through a company based in Costa Rica. When bettors lost, Hipsher or his associates collected the amounts due under the terms of the wager. Unbeknownst to Hipsher, beginning in approximately 2011, he recruited undercover agents from the Department of Homeland Security and the Orange County District Attorney's Office to collect unpaid or past due gambling debts.

In October 2013, the United States Attorney filed a one-count information alleging Hipsher conducted, managed, supervised, directed and owned an illegal gambling business. ( 18 U.S.C. § 1955.) Hipsher retired from the fire department less than two months after the information was filed. He was convicted, the following year, of the charged offense pursuant to his guilty plea.

LACERA notified Hipsher that it was required to adjust his retirement benefits pursuant to section 7522.72. According to the letter, the Los Angeles County Department of Human Resources determined that Hipsher's conviction was job-related. This determination was based on investigation reports from the United States Department of Homeland Security.

According to these reports, Hipsher met with undercover federal agents at a fire station located in Bell, California. Hipsher had requested the meeting to discuss ongoing debt collections and obtain counterfeit merchandise for resale. The undercover agents presented themselves as motorcycle gang members. Hipsher gave them a tour of the fire station, allegedly showing them the room where he conducted part of the operation. The agents used covert audio and video recording devices during their meetings with Hipsher.

LACERA made the following adjustments to Hipsher's benefits:

• Expunging 12 years and nine months of service credits.

• Expunging $97,060.77 in contributions and $48,183.7 in interest from his retirement fund.

• Reducing his retirement allowance from $6,843.14 to $2,932.42.

• Reducing the County's health care premium subsidy from 100 percent to 68 percent.

• Voiding the Board of Retirement decision granting him a service-connected disability retirement.

LACERA sent a letter to Hipsher's attorney confirming that there were no administrative remedies to challenge the benefit adjustment determination.⁴ Hipsher filed a petition for writ of mandate and complaint for declaratory relief. He alleged that reduction of his vested retirement benefits constituted an unconstitutional ex post facto application of section 7522.72, violated the contract clause of the California Constitution, and was invalid because there was no nexus between his crime and the performance of his official duties.

The trial court requested supplemental briefing as to whether Hipsher had a due process right to his original retirement benefits and, if so, whether he was afforded sufficient due process protections. In a lengthy statement of decision, the court issued judgment in favor of the defendants with respect to Hipsher's contract and ex post facto claims, and in favor of Hipsher with respect to the due process issue. As to the latter, the court issued a peremptory writ of mandate directing LACERA to set aside the reduction in Hipsher's pension benefits, and return the difference between his full pension and the allowance he received after the reduction. The court also ordered the County to re-initiate proceedings under section 7522.72 in a manner that affords Hipsher sufficient due process protections.⁵

Both Hipsher and the County filed timely notices of appeal.

DISCUSSION

We review questions regarding the constitutionality of a statute de novo. ( Vergara v. State of California (2016) 246 Cal.App.4th 619, 642, 209 Cal.Rptr.3d 532.) "The ultimate questions of whether vested contractual rights exist and whether impairments are unconstitutional present questions of law subject to independent review." ( Board of Administration v. Wilson (1997) 52 Cal.App.4th 1109, 1129, 61 Cal.Rptr.2d 207.)

I

Hipsher contends section 7522.72 is unconstitutional as applied to him because his vested contractual right to receive a pension was not subject to reduction even if he was convicted of a job-related crime.

A

The contract clause of the California Constitution prohibits the state from enacting a law impairing the obligation of contracts. ( Cal. Const., art. I, § 9.) By this clause, the state's ability to modify its own contracts with other parties, or contracts between other parties, is limited. ( Valdes v. Cory (1983) 139 Cal.App.3d 773, 783, 189 Cal.Rptr. 212 ( Valdes ).)

"[O]nce a public employee has accepted employment and performed work for a public employer, the employee obtains certain rights arising from the legislative provisions that establish the terms of the employment relationship—rights that are protected by the contract clause of the state Constitution from elimination or repudiation by the state." ( White v. Davis (2003) 30 Cal.4th 528, 566, 133 Cal.Rptr.2d 648, 68 P.3d 74.)

Not every contractual impairment runs afoul of the contracts clause. ( Teachers' Retirement Board v. Genest (2007) 154 Cal.App.4th 1012, 1026, 65 Cal.Rptr.3d 326.) " 'The constitutional prohibition against contract impairment does not exact a rigidly literal fulfillment; rather, it demands that contracts be enforced according to their "just and reasonable purport" ....' " ( Allen v. Board of Administration (1983) 34 Cal.3d 114, 119-120, 192 Cal.Rptr. 762, 665 P.2d 534 ( Allen ).) An appellant who claims the calculation of his retirement benefits violates his vested contractual rights under the state contract clause has the burden of " 'mak[ing] out a clear case, free from all reasonable ambiguity,' a constitutional violation occurred. [Citation.]" ( Deputy Sheriffs' Assn . of San Diego County v. County of San Diego (2015) 233 Cal.App.4th 573, 578, 182 Cal.Rptr.3d 759.)

There is a strong presumption that statutory amendments are constitutional. (See County of Sonoma v. State Energy Resources Conservation etc. Com . (1985) 40 Cal.3d 361, 370, 220 Cal.Rptr. 114, 708 P.2d 693.) Any doubt as to the Legislature's power to act should be resolved in favor of the legislative action. ( Alameda , supra , 19 Cal.App.5th at p. 90, 227 Cal.Rptr.3d 787.) "The reason for the elevated burden on plaintiffs raising a constitutional challenge under the contracts clause is this. ' "The state occupies a unique position in the field of contract law because it is a sovereign power. This gives rise to general principles which may limit whether an impairment has [occurred] as a...