Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange

• Decision Date: 21 November 2011
• Docket Number: No. S184059.,S184059.
• Parties: RETIRED EMPLOYEES ASSOCIATION OF ORANGE COUNTY, INC., Plaintiff and Appellant, v. COUNTY OF ORANGE, Defendant and Respondent.
• Court: California Supreme Court

11 Cal. Daily Op. Serv. 14,076

134 Cal.Rptr.3d 779

2011 Daily Journal D.A.R. 16,765

266 P.3d 287

33 IER Cases 123

52 Cal.4th 1171

RETIRED EMPLOYEES ASSOCIATION OF ORANGE COUNTY, INC., Plaintiff and Appellant,

v.COUNTY OF ORANGE, Defendant and Respondent.

No. S184059.

Supreme Court of California

Nov. 21, 2011.

See Annot., Vested right of pensioner to pension (1957) 52 A.L.R.2d 437; Cal. Jur. 3d, Family Law, § 840; Cal. Jur. 3d, Constitutional Law, § 375; Cal. Jur. 3d, Administrative Law, § 742; 7 Witkin, Summary of Cal. Law (10th ed. 2005) Constitutional Law, § 625; 8 Witkin, Summary of Cal. Law (10th ed. 2005) Constitutional Law, § 1285.

Rosen Bien & Galvan, San Francisco, Ernest Galvan; Moscone, Emblidge & Sater, San Francisco, G. Scott Emblidge, Rachel J. Sater; Law Office of Michael P. Brown and Michael P. Brown, for Plaintiff and Appellant.

Peter H. Mixon, Sacramento, Gina M. Ratto, Patricia K. McBeath, Howard L. Schwartz and Jennifer G. Krengel, for California Public Employees' Retirement System as Amicus Curiae on behalf of Plaintiff and Appellant.Law Offices of Robert J. Bezemek, Oakland, Robert J. Bezemek and Patricia Lim, for The California Federation of Teachers, The California Community College Independents Organization and The Fresno United Retirees Association as Amici Curiae on behalf of Plaintiff and Appellant.Lewis, Feinberg, Lee, Renaker & Jackson, Oakland, Jeffrey Lewis, Bill Lann Lee, Andrew Lah and Sacha Crittenden Steinberger, for California Retired County Employees Association, Sonoma County Association of Retired Employees and Retiree Support Group of Contra Costa County as Amici Curiae on behalf of Plaintiff and Appellant.Nicholas S. Chrisos, County Counsel, Teri L. Maksoudian, Deputy County Counsel; Meyers, Nave, Riback, Silver & Wilson, Oakland, Arthur A. Hartinger, Jennifer L. Nock and J. Scott Smith, for Defendant and Respondent.Renne Sloan Holtzman Sakai, San Francisco, Jonathan V. Holtzman, K. Scott Dickey and Steve Cikes, for League of California Cities and California State Association of Counties as Amici Curiae on behalf of Defendant and Respondent.Hanson Bridgett, San Francisco, Raymond F. Lynch, Sarah D. Mott and Caroline B. Burnett, for the County of Sonoma and the County of Contra Costa as Amici Curiae on behalf of Defendant and Respondent.BAXTER, J.

At the request of the United States Court of Appeals for the Ninth Circuit,¹ we address the following abstract question: “Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.” For the reasons that follow, we conclude that a county may be bound by an implied contract under California law if there is no legislative prohibition against such arrangements, such as a statute or ordinance. ( Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 246, 74 Cal.Rptr. 398, 449 P.2d 462.) Although Government Code section 25300 does require that compensation of county employees be addressed in an ordinance or resolution, the statute does not prohibit a county from forming a contract with implied terms, inasmuch as contractual rights may be implied from an ordinance or resolution when the language or circumstances accompanying its passage clearly evince a legislative intent to create private rights of a contractual nature enforceable against the county. Whether an implied term creates vested rights, in the absence of a legislative bar, is a matter of the parties' intent.

I

The backdrop for the question of California law presented by the Ninth Circuit is a lawsuit filed in 2007 by the Retired Employees Association of Orange County, Inc. (REAOC), against the County of Orange (County) contesting the validity of certain changes County has made to health benefits for retired employees.

In 1966, County began offering group medical insurance to retired County employees. County initially calculated premiums separately for active and retired employees. In 1985, County began combining active and retired employees into a single unified pool for purposes of calculating health insurance premiums. Retired employees, as a group, are on average older and more expensive to insure than active employees; if pooled separately, retirees normally would pay higher premiums. The single unified pool thus had the effect of subsidizing health insurance for retirees, in that it lowered retiree premiums below their actual costs, while raising active employee premiums above their actual costs. County paid a large portion of the premiums for active employees, but retired employees paid the majority of their own premiums. County pooled active and retired employees into a single unified pool without interruption from 1985 through 2007.

Due to budgetary concerns, County passed a resolution in 2007 splitting the pool of active and retired employees, effective January 1, 2008. Before passing the resolution, County negotiated changes to health benefits with labor unions representing the active employees. County did not negotiate with the retirees.

On November 5, 2007, REAOC filed suit in federal court against County on behalf of approximately 4,600 retired County employees and sought an injunction prohibiting County from splitting the pool of active and retired employees. REAOC conceded that the express provisions of the various memoranda of understanding (sometimes hereafter MOU) and the Orange County Board of Supervisors (Board) resolutions were silent as to the duration of the unified pool. But REAOC nonetheless alleged that County's action constituted an impairment of contract in violation of the federal and state Constitutions, in that County's long-standing and consistent practice of pooling active and retired employees, along with County's representations to employees regarding a unified pool, created an implied contractual right to a continuation of the single unified pool for employees who retired before January 1, 2008. REAOC noted, for example, that a booklet entitled “Health Plan Choices,” which was distributed to active employees, stated that “[w]hen you retire from the County you will be eligible to continue with the health insurance plans” and that “[r]etiree rates are based on the full monthly premiums for each plan, with adjustments for [M]edicare enrollment.” County, on the other hand, relied on the annual motions and resolutions of the Board setting health premiums during the relevant period, each of which specified health insurance rates only for that plan year.

The district court granted summary judgment for County on all claims. ( Retired Employees Ass'n v. County of Orange (C.D.Cal.2009) 632 F.Supp.2d 983.) As to the claims of breach of contract and impairment of contract, the court held that County cannot, as a matter of state law, be liable for any obligation it did not undertake explicitly through a resolution by the Board.

REAOC appealed to the Ninth Circuit. The federal appellate court recognized that REAOC's impairment-of-contract claim required a showing “that the County entered into an enforceable contract” to continue a single unified pool for the lifetimes of the retirees and noted further that “ ‘federal courts look to state law to determine the existence of a contract.’ ” ( Retired Employees Association of Orange County, Inc. v. County of Orange, supra, 610 F.3d at p. 1102.) The Ninth Circuit thus asked us for a decision whether, as County contends, “an implied contract to which a county is one party cannot confer ... vested rights” to health benefits in California. ( Id. at p. 1101.)

II

A contract is either express or implied. (Civ.Code, § 1619.) The terms of an express contract are stated in words. (Civ.Code, § 1620.) The existence and terms of an implied contract are manifested by conduct. (Civ.Code, § 1621.) The distinction reflects no difference in legal effect but merely in the mode of manifesting assent. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 102, p. 144.) Accordingly, a contract implied in fact “consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words.” ( Silva v. Providence Hospital of Oakland (1939) 14 Cal.2d 762, 773, 97 P.2d 798.)

Even when a written contract exists, “ ‘ “[e]vidence derived from experience and practice can now trigger the incorporation of additional, implied terms.” ’ ” ( Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 463, 46 Cal.Rptr.2d 427, 904 P.2d 834.) “Implied contractual terms ‘ordinarily stand on equal footing with express terms' ” ( ibid.), provided that, “as a general matter, implied terms should never be read to vary express terms.” ( Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 374, 6 Cal.Rptr.2d 467, 826 P.2d 710.)

All contracts, whether public or private, are to be interpreted by the same rules unless otherwise provided by the Civil Code. (Civ.Code, § 1635; see also M.F. Kemper Const. Co. v. City of L.A. (1951) 37 Cal.2d 696, 704, 235 P.2d 7 [“California cases uniformly refuse to apply special rules of law simply because a governmental body is a party to a contract”].) In the private sector, it is well understood that collective bargaining agreements are intended to govern “ ‘a myriad of cases which the draftsmen cannot wholly anticipate’ ” ( Consol. Rail Corp. v. Railway Labor Executives (1989) 491 U.S. 299, 311–312, 109 S.Ct. 2477, 105 L.Ed.2d 250); that resort may be had, in appropriate circumstances, to the parties' practice, usage, and custom in interpreting the agreement ( ibid.); and that such agreements “often contain implied, as well as express, terms” ( id. at p. 309, fn. 7, 109 S.Ct. 2477). Our precedents similarly find, in the public employment context, that “[g]overnmental subdivisions may be bound by an implied contract if there is no statutory prohibition against such...