L.A. Cty. Emp. Ret. Ass'n v. Cty. of L.A.

• Docket Number: B326977
• Decision Date: 24 June 2024
• Citation: 322 Cal.Rptr.3d 438
• Parties: LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION, Plaintiff and Appellant, v. COUNTY OF LOS ANGELES et al., Defendants and Respondents.
• Court: California Court of Appeals

322 Cal.Rptr.3d 438

LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION, Plaintiff and Appellant,

v.COUNTY OF LOS ANGELES et al., Defendants and Respondents.

B326977

Court of Appeal, Second District, Division 7.

Filed June 24, 2024

APPEAL from a judgment of the Superior Court of Los Angeles County, James C. Chalfant, Judge.Reversed.(Los Angeles County Super. Ct.No. 21STCP03475)

Latham & Watkins, Manuel A. Abascal, Los Angeles, Nicholas Rosellini, San Francisco, and Roman Martinez for Plaintiff and Appellant.

Hanson Bridgett, Raymond F. Lynch, Judith W. Boyette, San Francisco, and Matthew J. Peck, Walnut Creek, for Board of Retirement of the San Bernardino County Employees’ Retirement Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Benedon & Serlin, Judith E. Posner and Wendy S. Albers, Woodland Hills, for Coalition of County Unions as Amicus Curiae on behalf of Plaintiff and Appellant.

Law Office of Michael A. Conger and Michael A. Conger, Rancho Santa Fe, for Retired Employees of Los Angeles County as Amicus Curiae on behalf of Plaintiff and Appellant.

Jeff Rieger for Board of Retirement of the Alameda County Employees Retirement Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Renne Public Law Group, Linda M. Ross, San Francisco, Steve Cikes, Sacramento, and Ryan P. McGinley-Stempel for Defendants and Respondents.

Jennifer Bacon Henning for California State Association of Counties as Amicus Curiae on behalf of Defendants and Respondents.

SEGAL, J.

INTRODUCTION

This appeal presents two questions: First, does the fiduciary board of a county public employee retirement system established under the County Employees Retirement Law of 1937(Gov. Code, § 31450 et seq.(CERL))¹ have authority under the California Constitution and relevant statutes to create employment classifications and set salaries for employees of the retirement system?Second, does section 31522.1 impose a ministerial duty on a county board of supervisors to include in the county’s employment classifications and salary ordinance the classifications and salaries adopted by the board of a county public employee retirement system for employees of that system?It will take some time and space to explain our answers to these questions.In the meantime, here’s the short version: Yes and yes.

In 1992 the voters gave governing boards of public employee retirement systems "plenary authority and fiduciary responsibility for investment of moneys and administration of the system."(Cal. Const., art. XVI, § 17, added by initiative, Gen. Elec. (Nov. 3, 1992), the California Pension Protection Act of 1992, known as Proposition 162(Proposition 162).)The voters also required the governing boards of retirement systems "to maximize the rate of return" while "defraying reasonable expenses of administering the system."(Id., subds. (b), (d).)In enacting Proposition 162 the voters declared that, to "protect pension systems, retirement board trustees must be free from political meddling and intimidation."(Ballot Pamp., Gen. Elec. (Nov. 3, 1992) text of Prop. 162, p. 70, § 2, subd. (f)(1992 Ballot Pamp.).)The voters intended Proposition 162 to "give the sole and exclusive power over the management and investment of public pension funds to the retirement boards," to "strictly limit the Legislature’s power over such funds," and to "prohibit the Governor or any executive or legislative body of any political subdivision of this state from tampering with public pension funds."(Id., p. 70, § 3, subd. (e).)

Proposition 162 expanded the authority granted to governing boards of county retirement systems under CERL to manage their systems and, for boards that agreed to pay administrative costs out of retirement system funds, to establish annual budgets and to appoint their own staff.(See§§ 31522.1,31580.)Thus, the management of pension fund assets for such boards includes expenditures for salaries and benefits for retirement system employees.Following Proposition 162, retirement boards that appoint their own staff may incur only "reasonable expenses" in fulfilling their "sole and exclusive fiduciary responsibility over [system] assets" and their duties "to minimize the risk of loss and to maximize the rate of return."(Cal. Const., art. XVI, § 17, subds. (a), (d).)

Under CERL the governing boards of the Los Angeles County Employees Retirement Association(LACERA) budget and pay for LACERA’s staff out of system assets.In 1996Los Angeles County and its Board of Supervisors agreed with LACERA that Proposition 162 gave LACERA authority to create employment classifications and set salaries for LACERA employees.The County also agreed "the Board of Supervisors has a ministerial duty [under section 31522.1] to adopt an ordinance implementing classification and compensation changes adopted by LACERA for its employees."For two decades LACERA’s Board of Retirement and its Board of Investments(collectively, the LACERA Boards) determined which positions were necessary to satisfy their fiduciary responsibilities under Proposition 162, created employment classifications to reflect the requisite qualifications and responsibilities for such positions, and set salary ranges to recruit and retain persons to fill those positions, while the Board of Supervisors implemented the LACERA Boards’ decisions.

In 2018, however, something happened.The Board of Supervisors began rejecting certain employment classifications and salaries the LACERA Boards had adopted for LACERA employees.The Board of Supervisors cited a 15,-year-old decision, Westly v. Board of Administration(2003)105 Cal.App.4th 1095, 130 Cal.Rptr.2d 149(Westly), which held the broad authority Proposition 162 granted to retirement boards was not broad enough to give the governing board of the state public employees retirement system the power to establish employment classifications and set salaries for its employees.The Board of Supervisors also cited the need "for alignment with the existing LACERA and County organizational structure."

The standoff between the Board of Supervisors and the LACERA Boards prevented LACERA from hiring and compensating certain employees the LACERA Boards deemed necessary to fulfill their fiduciary duties under Proposition 162 and ultimately caused LACERA to file this action for declaratory relief and a writ of mandate.Following Westly,the trial court denied LACERA’s request for declaratory relief and its petition for a writ of mandate to require the Board of Supervisors to adopt the LACERA Boards’ employment classifications and salaries for LACERA employees.

Unlike the trial court, we are not bound by the court’s decision in Westly.Which is a good thing, because we conclude that decision is inconsistent with the language, purpose, and intent of Proposition 162.We also conclude section 31522.1 imposes on a county board of supervisors a ministerial duty to include in "eligible lists created in accordance with the civil service or merit system rules of the. county in which the retirement system governed by the boards is situated" the employment classifications adopted by a board of retirement or board of investment and to include in the county salary ordinance or resolution the salaries adopted by a board of retirement or board of investment.Without that mandate, a political subdivision such as a county can elevate its political priorities over the fiduciary duty of a retirement board to administer its system for the "exclusive purposes of providing benefits to participants … and their beneficiaries and defraying reasonable expenses of administering the system."(SeeCal. Const., art. XVI, § 17, subd. (b).)Because Proposition 162 does not allow that, we reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A.The Constitution Authorizes the Board of Supervisors To Govern the County Under a County Charter

Let’s start at the beginning.The California Constitution divides the state into counties and allows the governing bodies of those counties to adopt a charter for their governance.(Cal. Const., art. XI, §§ 1,3;seeDibb v. County of San Diego(1994)8 Cal.4th 1200, 1206, 36 Cal.Rptr.2d 55, 884 P.2d 1003.)Los Angeles County is a "charter county"(Dimon v. County of Los Angeles(2008)166 Cal.App.4th 1276, 1281 & fn. 7, 83 Cal.Rptr.3d 576) governed by the Los Angeles County Board of Supervisors(L.A County Charter, art. I, § 2;id.,art. II, § 4).

[1, 2]Article XI, section 4 of the California Constitution addresses the structure and operation of charter counties and grants charter counties a degree of " ‘home rule,’ i.e., the authority of the people to create and operate their own local government and define the powers of that government, within the limits set out by the Constitution."(Dibb v. County of San Diego, supra,8 Cal.4th at p. 1206, 36 Cal.Rptr.2d 55, 884 P.2d 1003.)"Consequently, ‘[w]hen a California County[such as Los Angeles County] adopts a charter, its provisions "are the law of the State and have the force and effect of legislative enactments." ’ "(Dimon v. County of Los Angeles, supra,166 Cal.App.4th at p. 1281-1282, 83 Cal.Rptr.3d 576;accord, Holmgren v. County of Los Angeles(2008)159 Cal.App.4th 593, 601, 71 Cal.Rptr.3d 611;seeCounty of Riverside v. Superior Court(2003)30 Cal.4th 278, 285, 132 Cal.Rptr.2d 713, 66 P.3d 718.)

[3]Article XI, section 4 states county charters "shall provide for," among other things, the "fixing and regulation by governing bodies, by ordinance, of the appointment and number of assistants, deputies, clerks, attaches, and other persons to be employed, and for the prescribing and regulating by such bodies of the powers, duties, qualifications, and compensation of such persons, the times at which, and terms for which they shall be appointed, and the manner of their appointment and removal."(Cal. Const., art. XI, § 4, subd. (f).)Under the home rule doctrine, "county charter provisions ...