Yuba City Unified Sch. Dist. v. Cal. State Teachers' Ret. Sys.

• Citation: 18 Cal.App.5th 648,227 Cal.Rptr.3d 130
• Decision Date: 18 December 2017
• Docket Number: C082934
• Court: California Court of Appeals
• Parties: YUBA CITY UNIFIED SCHOOL DISTRICT, Plaintiff and Respondent, v. CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM, Defendant and Appellant.

18 Cal.App.5th 648

227 Cal.Rptr.3d 130

YUBA CITY UNIFIED SCHOOL DISTRICT, Plaintiff and Respondent,

v.CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM, Defendant and Appellant.

C082934

Court of Appeal, Third District, California.

Filed December 18, 2017

Sheppard, Mullin, Richter & Hampton, Raymond C. Marshall and Robert J. Stumpf, Jr., San Francisco, for Defendant and Appellant.

Kingsley Bogard, Lindsay K. Moore and Ethan Retan, Folsom, for Plaintiff and Respondent.

RENNER, J.

The California State Teachers' Retirement System (CalSTRS) appeals from a decision granting the Yuba City Unified School District's (District) petition for writ of mandate and setting aside CalSTRS's decision to collect overpayments mistakenly made to some of the District's retirees. The superior court held that the three-year statute of limitations set forth in Education Code section 22008, subdivision (c) bars collection of the overpayments because a 2005 letter CalSTRS sent one of the retirees demonstrated actual notice of the payment issues.¹ We disagree. The letter does not reflect actual notice of the specific payment issues raised in this proceeding. We conclude, however, that inquiry notice would be sufficient to start the limitation period contained in section 22008, subdivision (c). Whether CalSTRS had inquiry notice in this case is a question of fact that was not addressed at the administrative level or by the superior court. We will reverse and remand for further proceedings in light of these conclusions.

I. BACKGROUND

"[Cal]STRS is the state agency responsible for managing contributions made by employees and member school districts to the State Teachers' Retirement Fund." ( O'Connor v. State Teachers' Retirement System (1996) 43 Cal.App.4th 1610, 1614, 51 Cal.Rptr.2d 540.) As relevant here, CalSTRS is charged with determining "the appropriate crediting of contributions between the Defined Benefit Program and the Defined Benefit Supplement Program." (§ 22119.2, subd. (f).) CalSTRS is administered by the Teachers' Retirement Board (Board). (§ 22200, subd. (a).) The Board may audit the records of a public agency (§ 22206) and require the county superintendent or any employing agency to provide pertinent information regarding members (§ 22455).

Pursuant to this authority, CalSTRS conducted an audit of the District that covered members retiring between the 2002-03 and 2011-12 school years. In 2012, CalSTRS issued an audit report that found the District had incorrectly reported certain one-time payments as creditable to the Defined Benefit Program instead of the Defined Benefit Supplement Program for members who retired between the 2002-03 and 2008-09 school years. The types of District payments at issue were: (1) payments of $1,750 upon retirement and (2) payments of 25 percent of the member's last year's base salary. These reporting errors caused 54 members' final compensation to be overstated and resulted in an overpayment to each of these retirees of between $12 and $992 per month. The report outlined the need for the District to make corrections and explained that CalSTRS would collect the overpayments pursuant to sections 24616 and 24617. Because the overpayments were based on erroneous information from the District, CalSTRS would also seek payment from the District for the difference between the overpayments and the amount CalSTRS projected it could collect from the members. (§ 24616.5.)

The District and 47 of the retirees requested an appeal of the final audit.² They also moved to dismiss based on the statute of limitations set forth in section 22008. The motion was based on a letter CalSTRS sent to one of the retirees, Lavaune Bell, on October 15, 2005, after she withdrew $100,000 from her account. The letter explains that Bell's monthly benefit would be changed as the result of either "additional employer reporting or an internal correction to [her] account." Further, CalSTRS would deduct 5 percent from her monthly benefit until the overpayment was repaid. The letter was signed, "Service Retirement."

A hearing on the District's appeal and motion to dismiss was held before an administrative law judge (ALJ) in December 2014. After the hearing, the ALJ issued a proposed decision denying the appeal and the motion to dismiss. The ALJ found that the $1,750 payment was paid to all of the relevant retirees upon retirement, but the 25 percent payment was only at issue for one retiree, Daniel Kohl.

The District no longer contests the merits of CalSTRS's audit findings, and we focus our summary of the ALJ's proposed decision on her ruling on the motion to dismiss. The ALJ explained that the three-year statute of limitations set forth in section 22008, subdivision (c) began to run on the date the incorrect payment was discovered. The ALJ summarized the testimony of a CalSTRS Pension Program Manager who explained that he believed the Sutter County Office of Education was responsible for initiating the recalculation,³ and CalSTRS did not audit Bell's account until 2012. The ALJ quoted from the manager's declaration: " ‘Employers submit earnings and contribution data through an automated system to CalSTRS. The majority of employers report their data directly to the county office of education, which is then reported to the CalSTRS system via a direct reporting portal .... Information is then automatically processed by the CalSTRS system for calculating a benefit. As a result, CalSTRS does not know the nature of the service performed based upon the reporting; only the compensation paid, the compensation earnable (full-time equivalent), and the associated contributions. Unless there is a manual review, such as an audit, of the collective bargaining agreement or employment contract associated with the individual reporting lines, CalSTRS cannot verify the nature of the service performed.’ " Moreover, if an employer provides additional reporting or if an account is corrected, " ‘the system utilized by CalSTRS will create an automatic computer-generated letter.’ "

The parties agreed that the benefit recalculation set forth in the 2005 letter to Bell only excluded her 25 percent payment but continued to reflect the $1,750 payment. The ALJ found "there was not adequate evidence to conclude that the October 15, 2005[,] letter to respondent Bell demonstrated that CalSTRS, in 2005, was made sufficiently aware of the District's coding of the 25[ percent] and $1,750 payments to the [Defined Benefit] Program to put CalSTRS on notice that it needed to take prompt action relating to all the teacher respondents. On its face, the October 15, 2005[,] letter did not explicitly refer to either the 25[ percent] payment or the $1,750 payment. It is not clear from that letter who may have inputted the information into the CalSTRS system that resulted in the recalculation of respondent Bell's monthly retirement benefit. Consequently, the evidence did not establish that when respondent Bell's monthly retirement benefit was recalculated in 2005, CalSTRS was aware of the general coding issues surrounding the 25[ percent] and $1,750 payments to trigger the running of the limitations period."

CalSTRS adopted the ALJ's proposed decision as its decision on July 9, 2015. The District filed a petition for a writ of administrative mandate pursuant to Code of Civil Procedure section 1094.5 seeking to set aside CalSTRS's decision.

On June 17, 2016, the superior court issued a statement of decision. It explained that it "adopts the Administrative Law Judge's finding of fact, but not the conclusions of law. Whether the 2005 letter constitutes actual or inquiry notice is a conclusion of law. [¶] The 2005 letter from [CalSTRS] to [Bell] constitutes actual notice to [CalSTRS] of the payment issues. [CalSTRS]' s actions to seek repayment or otherwise adjust the alleged overpayments are therefore untimely and must cease."

On July 27, 2016, the superior court issued a peremptory writ of mandamus and entered judgment accordingly.

On September 6, 2016, CalSTRS appealed.

II. DISCUSSION

A. Standard of Review

Because CalSTRS's administrative decision to seek repayment substantially affects the retirees' fundamental vested right in the State Teachers' Retirement Fund to the amount to which they are entitled by law, the independent judgment standard of review applies. ( Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763, 789, 72 Cal.Rptr.2d 624, 952 P.2d 641 ; O'Connor v. State Teachers' Retirement System, supra, 43 Cal.App.4th at p. 1620, 51 Cal.Rptr.2d 540.) Under this standard, "a trial court must afford a strong presumption of correctness concerning the administrative findings, and the party challenging the administrative decision bears the burden of convincing the court that the administrative findings are contrary to the weight of the evidence." ( Fukuda v. City of Angels (1999) 20 Cal.4th 805, 817, 85 Cal.Rptr.2d 696, 977 P.2d 693.) "[T]he standard of review on appeal of the trial court's determination is the substantial evidence test." ( Id . at p. 824, 85 Cal.Rptr.2d 696, 977 P.2d 693.) Additionally, "we are not bound by any legal interpretations made by the administrative agency or the trial court; rather, we make an independent review of any questions of law." ( Rand v. Board of Psychology (2012) 206 Cal.App.4th 565, 575, 142 Cal.Rptr.3d 288.)

B. Statute of Limitations

Section 22008 sets forth the statute of limitations "[f]or the purposes of payments into or out of the retirement fund for adjustments of errors or omissions with respect to the Defined Benefit Program or the Defined Benefit Supplement Program ... :

"(a) No action may be commenced by or against ... the system ... more than three years after all obligations to or on behalf of the member ... have been discharged.

"(b) If the system makes an error that results in incorrect payment to a member ... , the system's right to commence recovery shall expire three years from the date the incorrect payment was made.

"(c) If an

...