Lexin v. Superior Court

• Decision Date: 25 January 2010
• Docket Number: No. S157341.,S157341.
• Citation: 222 P.3d 214,47 Cal.4th 1050,103 Cal. Rptr. 3d 767
• Court: California Supreme Court
• Parties: CATHY LEXIN et al., Petitioners, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; THE PEOPLE, Real Party in Interest.

47 Cal.4th 1050

103 Cal. Rptr. 3d 767

222 P.3d 214

CATHY LEXIN et al., Petitioners, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent;

THE PEOPLE, Real Party in Interest.

No. S157341.

Supreme Court of California.

January 25, 2010.

[47 Cal.4th 1060]

Gibson, Dunn & Crutcher and Theodore J. Boutrous, Jr., for Petitioners.

Gibson, Dunn & Crutcher and Nicola T. Hanna for Petitioner Cathy Lexin.

Coughlan, Semmer & Lipman, R. J. Coughlan, Jr., and Earll M. Pott for Petitioner Ronald Lee Saathoff.

Steven J. Carroll, Public Defender, and Greg S. Maizlish, Deputy Public Defender, for Petitioner John Anthony Torres.

Hahn & Adema and David A. Hahn for Petitioner Mary Elizabeth Vattimo.

Law Office of Frank T. Vecchione and Frank T. Vecchione for Petitioner Teresa Aja Webster.

Damiani Law Group and Lisa J. Damiani for Petitioner Sharon Kay Wilkinson.

Jennifer B. Henning, upon request of the Court of Appeal, and Daniel S. Hentschke for California State Association of Counties, League of California Cities and Association of California Water Agencies as Amici Curiae on behalf of Petitioners.

Klausner & Kaufman, Robert D. Klausner and Adam P. Levinson for National Conference on Public Employee Retirement Systems as Amicus Curiae on behalf of Petitioners.

[47 Cal.4th 1061]

Schwartz, Steinsapir, Dohrmann & Sommers, Robert M. Dohrmann and Henry M. Willis for Local 18, International Brotherhood of Electrical Workers, AFL-CIO as Amicus Curiae on behalf of Petitioners.

Reed Smith, Harvey L. Leiderman and Jeffrey R. Rieger for Board of Retirement of the Contra Costa County Employees' Retirement Association and Board of Retirement of the Orange County Employees' Retirement System as Amici Curiae on behalf of Petitioners.

Steefel, Levitt & Weiss, Manatt, Phelps & Phillips, Ashley K. Dunning, Amy B. Briggs and Kelly L. Knudson for Los Angeles County Employees' Retirement Association, Los Angeles City Employees Retirement System, Los Angeles Fire and Police Pension System, Los Angeles Water and Power Employees Retirement Plan, Alameda County Employees' Retirement Association, Kern County Employees' Retirement Association, Marin County Employees' Retirement Association, Merced County Employees' Retirement Association, Sacramento County Employees' Retirement Association, San Bernardino County Employees' Retirement Association, San Mateo County Employees' Retirement Association, Sonoma County Employees' Retirement Association, Stanislaus County Employees' Retirement Association, Ventura County Employees' Retirement Association, California Public Employees' Retirement System and California State Teachers' Retirement System as Amicus Curiae on behalf of Petitioners.

Tosdal, Smith, Steiner & Wax, Ann M. Smith and Fern M. Steiner for San Diego Municipal Employees Association, Deputy Sheriffs' Association of San Diego County, SEIU Local 221, Teamsters Local 542 and Teamsters Local 952 as Amici Curiae on behalf of Petitioners.

Robert E. Lindquist, Alice O'Brien, Rosalind D. Wolf, Michael D. Hersh, John F. Kohn and Brenda Sutton-Wills for California Teachers Association as Amicus Curiae on behalf of Petitioners.

Edmund G. Brown, Jr., Attorney General, Christopher E. Krueger, Assistant Attorney General, Stephen P. Acquisto and Mark R. Beckington, Deputy Attorneys General, for California Public Employees' Retirement System as Amici Curiae on behalf of Petitioners.

No appearance for Respondent.

Bonnie M. Dumanis, District Attorney, Stephen R. Robinson, Craig E. Fisher and William J. La Fond, Deputy District Attorneys, for Real Party in Interest.

[47 Cal.4th 1062]

OPINION

WERDEGAR, J.

This case is a residuum of the fiscal crisis that swept the City of San Diego (City) over the last decade. That crisis, arising from the City's failure to fund its employee retirement system adequately, led to federal investigations of the City's bond disclosures, suspension of the City's credit rating, class action lawsuits against the City for underfunding, the mayor's resignation, and amendments of the City's charter to change the composition of the board overseeing the retirement system.

The six defendants below, Cathy Lexin, Mary Elizabeth Vattimo, Teresa Aja Webster, Sharon Kay Wilkinson, John Anthony Torres, and Ronald Lee Saathoff (collectively the Lexin defendants), were trustees of the board administering the City's retirement system. They have been charged with felony violations of state conflict of interest statutes (Gov. Code, § 1090 et seq.)¹ for allegedly voting to authorize an agreement allowing the City to limit funding of its retirement system in exchange for the City's agreeing to provide increased pension benefits to City employees, including the Lexin defendants.

The Lexin defendants brought a Penal Code section 995 motion to set aside the information against them because, they argued, Government Code section 1090² and its exceptions were not intended to criminalize the making of contracts by parties whose only financial stake was their interest in government pension benefits. The trial court denied the motion because it concluded pension benefits were not "salary" of the sort the Legislature intended to excuse when it created the government salary exception to section 1090. (See § 1091.5, subd. (a)(9); hereafter section 1091.5(a)(9).) The Court of Appeal rejected this reasoning, but affirmed the denial because it found section 1091.5(a)(9) inapposite for other reasons and because it further concluded the public services exception (§ 1091.5, subd. (a)(3); hereafter section 1091.5(a)(3)) did not apply.

We reverse as to five of the six defendants. We conclude that, with one exception, the defendant trustees' actions fall within statutory exceptions to section 1090, and accordingly their motion to dismiss the information against them should have been granted. This case turns on our conclusion that the trustees of the City's retirement system board were not burdened by a conflict of the sort section 1090 prohibits: a division in the loyalties of public servants between the public interests of their constituents and private opportunities for their own personal financial gain. Rather, by intentional legislative design, many of the board's trustees were members of the retirement system and thus had interests in common with the membership as a whole. That the Lexin defendants were financially interested in the agreement here—like thousands of their fellow retirement system members—was a consequence of this fact. The public services exception to section 1090—section 1091.5(a)(3)— recognizes that financial interests shared with one's constituency do not present the dangers the state's conflict of interest laws were designed to eradicate. Accordingly, it excepts such interests from section 1090's purview.

As applied here, the provision covers the actions of five of the six defendants. The sixth, Ronald Saathoff, could on the preliminary hearing record reasonably be suspected of having obtained a unique, personalized pension benefit as a result of voting to approve the retirement board's contract with the City. Such individually tailored benefits pose genuine conflict problems and do not fall under any statutory exception. Accordingly, we affirm as to Saathoff, reverse as to all other defendants, and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

I. The San Diego City Employees' Retirement System

San Diego is a charter city. It maintains a pension plan for its employees, the San Diego City Employees' Retirement System (SDCERS). (San Diego City Charter, art. IX, § 141; San Diego Mun. Code, § 24.0101.) SDCERS is a defined benefit plan in which benefits are based upon salary, length of service, and age. (San Diego Mun. Code, §§ 24.0402-24.0405.) The plan is funded by contributions from both the City and its employees. (San Diego City Charter, art. IX, § 143; San Diego Mun. Code, § 24.0402.) Membership is compulsory. (San Diego Mun. Code, § 24.0104, subd. (a).) As of June 2008, the plan had nearly 20,000 members. (SDCERS Comprehensive Annual Financial Rep. (2008) p. 29.)

The pension fund is overseen by a 13-member board of administration (SDCERS Board or Board). (San Diego City Charter, art. IX, § 144.) Although established by the City, the Board is a separate entity. (Ibid.; Bianchi v. City of San Diego (1989) 214 Cal.App.3d 563, 571 .) The SDCERS Board is a fiduciary charged with administering the City's pension fund in a fashion that preserves its long-term solvency; it must ensure that through actuarially sound contribution rates and prudent investment, principal is conserved, income is generated, and the fund is able to meet its ongoing disbursement obligations. (Cal. Const., art. XVI, § 17; San Diego City Charter, art. IX, § 144.) Consistent with that central mission, the SDCERS Board has a range of ancillary obligations, including but not limited to providing for actuarial services, determining member eligibility for and ensuring receipt of benefits, and minimizing employer contributions. (Cal. Const., art. XVI, § 17, subds. (b), (e); San Diego City Charter, art. IX, §§ 142, 144; San Diego Mun. Code, § 24.0901.) To carry out these duties, the Board is granted the power to make such rules and regulations as it deems necessary. (San Diego City Charter, art. IX, § 144; San Diego Mun. Code, §§ 24.0401, 24.0901; see generally Bianchi, at p. 571; Grimm v. City of San Diego (1979) 94 Cal.App.3d 33, 39-40 .)³

The composition of the Board is fixed by San Diego's charter; as of 2002, the charter provided for three ex officio positions (the city manager, treasurer, and auditor), one trustee elected by fire safety members, one elected by police safety members, one elected by retired members, three elected by the active membership, and four appointed by the city council. (San Diego City Charter, art. IX, former § 144.)⁴ All six Lexin defendants were trustees of the SDCERS Board. Cathy Lexin, Mary Elizabeth Vattimo,...