to add subdivision (a)(4), to include "[a]ll other safety members effective July 1, 1985,"
5
to the definition of those persons eligible for the retiree health program. Thus, the
expanded definition of persons eligible for postemployment health benefits now included
Dailey.
However, unlike the original retiree health ordinance, Ordinance No. O-16449 did
not state that the inclusion of new eligible employees to the City's retiree health program
was intended to be a permanent benefit. Ordinance No. 0-16449 also did not amend
SDMC section 24.0907.2 to remove the City's right to periodically modify the retiree
health program without the consent of City employees or those eligible for the program.
Following the expansion of eligibility of the retiree health program to include employees
such as Dailey, SDMC section 24.0907.2 still retained the language "[h]ealth plan
coverage for eligible retirees and eligible dependents is subject to modification by the
City and the provider of health care services, and may be modified periodically as
deemed necessary and appropriate."
In the general election of 1996, pursuant to Proposition D, the voters of the City
were asked to approve an amendment to the City's Charter "to authorize the City Council
to provide [retiree health] benefits through the San Diego City Retirement System"
instead of "directly from the City's operating funds, as is the current practice." The ballot
for this proposition stated: "Proposition D would change the City Charter to permit
shifting this costly item from the city's General Fund paid by all taxpayers—to the city's
retirement system, paid for by the retirement system's investment earnings and assets.
This shift would save city taxpayers between $5 million and $6 million each year."
6
(Italics added.) Proposition D passed, receiving 231,410 votes in favor and 88,537 votes
against.
C. Negotiated Changes to the Retiree Health Program
In 1997 all of the City's labor unions met and conferred with the City regarding
potential changes to the amount the City would reimburse retirees for their retiree health
benefits. On "February 6,1997, a task force of the four labor organizations reached
agreement with the City Management Team on the level of health benefits to be provided
by the Retirement System." The agreed-upon changes to the retiree health benefit were
implemented pursuant to Ordinance No. 0-18392.
In 2002 the City and its four labor unions, including Dailey's labor union, again
met and conferred regarding potential changes to the retiree health benefit, and thereafter
"the four labor organizations . . . reached an agreement with the City Management Team
on the level of health benefits to be provided to Health Eligible Retirees . . . ."
In Ordinance No. 0-19121, retiree health benefits are not referred to as retirement
benefits. Rather, the retirement benefits and retiree health benefits are listed as separate
items: "WHEREAS, the City Council has approved the agreements on retirement
benefits and retiree health benefits; and [¶] WHEREAS, the Municipal Code must now
be amended to reflect the changes to retirement benefits and retiree health benefits
approved by the City Council . . . ." (Italics added.)
In August 2005 the City and the POA engaged in labor negotiations related to a
successor memorandum of understanding addressing the POA members' wages, hours
and working conditions. (SDPOA v. SDCERS, supra, 568 F.3d at pp. 731-732.) The
7
POA and the City were unable to agree on a successor memorandum of understanding.
(SDPOA v. SDCERS, supra, 568 F.3d at p. 732.) Accordingly, the City imposed its last,
best and final offer on the POA. (Ibid.) The imposition included changes to the retiree
health benefits of the members of the POA.1
D. Federal Court Litigation
As a result of the City imposing its last, best and final offer, the POA, on behalf of
Dailey and all its other members, sued the City in federal court. In that action the POA
alleged that the City's "Last, Best and Final Offer unlawfully deprived, eliminated and
reduced Member's vested benefits, including but not limited to the following [¶] . . . [¶]
(c) capping and limiting Retiree Medical Benefits in a manner that deprives Plaintiff
Members of medical benefits equal to those of social security recipients during their
lifetime, contrary to the voters' mandate in 1981 as set forth herein and in violation of
Defendant City's Social Security Opt-out Agreement."
In 2007 the United States District Court for the Southern District of California, the
Honorable Marilyn L. Huff, issued a ruling granting the City's motion for summary
judgment and denying the POA's motion for summary judgment. On the question of
whether the City's retiree health benefit was a vested contractual right that the City
1 The City has requested that we take judicial notice of several documents, including a meet-and-confer proposal, City resolutions and City ordinances that were not made part of the record on appeal. Dailey has opposed that request, asserting it is improper because those items occurred after the judgment was entered in this case. We grant the request for judicial notice because we may take judicial notice of postjudgment legislative changes that are relevant to an appeal. (See Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2013) ¶¶ 8:182 to 8:188, pp. 8:137 to 8:141 (rev. #1, 2009).) 8
impermissibly violated when, in 2005, the City imposed its last, best and final offer, the
District Court, relying on California substantive law, held that the City's retiree health
benefit is not a vested right subject to protection by the contracts clause of the United
States Constitution.
Thereafter, the POA filed an appeal of the District Court's decision with the Ninth
Circuit Court of Appeals, and the Ninth Circuit upheld the District Court's decision.
(SDPOA v. SDCERS, supra, 568 F.3d. at pp. 731-732.) The Ninth Circuit held that the
City's retiree health benefit is an employment benefit, not a vested pension benefit. (Id.
at p. 740.)
E. IRS Settlement
In 2008, following a review of the City's pension plan by the Internal Revenue
Service (IRS), which was voluntarily initiated by SDCERS, the IRS found several
benefits that did not comply with the Internal Revenue Code and jeopardized the tax-
exempt qualification of the City's pension plan.
As to the City's retiree health benefit, the IRS found two failures. The IRS found
that in failure No. 6 that "[d]uring the plan years that ended in 1983 through 1991 retiree
health benefits were paid by the Plan even though the terms of the Plan did not provide
for such benefits." The IRS also found in failure No. 7 that "[d]uring the plan years that
ended in 1998 through 2005 the terms of the Plan and its operation did not comply with
all of the requirements of [SDMC] sections 401[, subdivision] (a)(2) and 401[,
subdivision] (h) as they relate to retiree health benefits because the terms of the Plan
9
provided that earnings of the trust would ultimately be used to fund these benefits
resulting in the underfunding of the Plan."
In order to correct these (and other) violations so that the IRS would not seek
monetary penalties and/or seek to disqualify the City's pension plan's tax exempt status,
the City and SDCERS entered into a settlement with the IRS.
With regard to the retiree health benefit, the City corrected failure No. 6 by
reimbursing SDCERS for the $33,830,251 in health care premium reimbursements
improperly made from the assets of the pension plan since 1983. Addressing failure No.
7, the City and SDCERS agreed that "in order to comply with all of the requirements of
[SDMC] sections 401[, subdivision] (a) and 401[, subdivision] (h) the payment of retiree
health benefits must be funded by separately designated employer contributions and
cannot be funded (directly or indirectly) from pension assets, including plan earnings."
The IRS also required the City to amend its pension plan documents to retroactively
remove any provisions that allowed for reimbursement of retiree health premiums from
pension plan assets.
On April 28, 2008, the City adopted Ordinance No. O-19740, which implemented
all the corrections required by the IRS pursuant to the settlement. For example, as to the
retiree health benefit, Ordinance No. 0-19740 repealed several sections of the SDMC
which provided funding for the retiree health benefit from pension plan assets.
and the City's other employees to vote on whether or not to approve modifications to
4 Former Government Code section 3505.4 has now been replaced by Government Code section 3505.7, which provides in part: "After any applicable mediation and factfinding procedures have been exhausted, . . . a public agency that is not required to proceed to interest arbitration may, after holding a public hearing regarding the impasse, implement its last, best, and final offer . . . ." 23
terms of employment the City can impose before they become effective would thus
conflict with the Meyers-Milias-Brown Act.
The City is a charter city. (Grimm v. City of San Diego (1979) 94 Cal.App.3d 33,
37.) The charter is the supreme law of a charter city, subject only to conflicting
provisions in the federal and state constitutions and to conflicting provisions of
preemptive state law. (Domar Electric, Inc. v. City of Los Angeles (1994) 9 Cal.4th 161,
170.) Article XI, section 7 of the California Constitution provides that a "city may make
and enforce within its limits all local, police, sanitary and other ordinances and
regulations not in conflict with general laws." (Italics added.)
The Meyers-Milias-Brown Act is a general law that is of statewide concern with
which the City's Charter cannot conflict because the Legislature intended for the Meyers-
Milias-Brown Act to regulate the entire field of labor relations of affected public
employees. (San Leandro Police Officers Assn. v. City of San Leandro (1976) 55
Cal.App.3d 553, 557.) The California Supreme Court has held that "[i]t is indisputable
that the procedures set forth in the [Meyers-Milias-Brown Act] are a matter of statewide
concern, and are preemptive of contradictory local labor-management procedures."
(Voters for Responsible Retirement v. Board of Supervisors (1994) 8 Cal.4th 765, 781.)
Accordingly, because Government Code section 3505.4 addresses a matter of
statewide concern, Dailey's contention that a Charter section 143.1(a) vote is required
before any changes to the retiree health benefit can become effective would allow
members of the City's pension plan to ultimately veto changes to the retiree health benefit
that the City can legally impose. Dailey's argument, therefore, necessarily requires
24
Charter section 143.1 to conflict with the Meyers-Milias-Brown Act. Since, the City's
Charter cannot preempt the Meyers-Milias-Brown Act on this issue, the only way to
harmonize Charter section 143.1 and the Meyers-Milias-Brown Act is to find that retiree
health is not a benefit under the retirement system, and thus, is not subject to a Charter
section 143.1(a) vote.
Based upon statutory preemption principles, Dailey's argument fails, as the right of
the City to make changes to the retiree health program conditioned on Dailey and other
members of the pension system affirmative vote would conflict with the City's right to
impose changes if the parties reach an impasse.
II. THE DEMURRER
Following the City's imposition of its last, best and final offer in 2009, Dailey
instituted this action seeking a judicial declaration that the City imposition of that offer
was an unconstitutional impairment of a vested contractual right. Specifically, in
Dailey's second cause of action she sought to relitigate the decision of the Ninth Circuit
in SDPOA v. SDCERS, which held that the City's imposition of a monetary freeze of her
annual retiree health benefit at $8,880 per year, as part of City's last, best and final offer
and codified by Ordinance No. 0-19874, was not an unconstitutional impairment of a
vested contractual right. Dailey contended that the District Court and the Ninth Circuit's
decisions in SDPOA v. SDCERS were erroneous.
A. The Doctrine of Collateral Estoppel Applies
On appeal, Dailey concedes that all the elements for collateral estoppel exist.
Specifically, Dailey concedes that she was in privity with the POA, the plaintiff in
25
SDPOA v. SDCERS, supra, 568 F.3d 725, there was a final judgment on the merits in that
prior action, and the issue litigated in the prior action is identical to the issue contained in
Dailey's second cause of action. (See Coscia v. McKenna & Cuneo (2001) 25 Cal.4th
1194, 1201, fn. 1.)
Therefore, unless an exception to the collateral estoppel doctrine applies, collateral
estoppel bars Dailey's second cause of action. However, as we shall explain, no
exception applies to the facts of this case.
1. Application of the doctrine of collateral estoppel is not "unfair"
On appeal, Dailey asserts that, in the prior litigation, the POA had no incentive to
vigorously litigate its own cause of action related to the retiree health benefit because the
amount at stake was "de minimus" and future litigation was not foreseeable. Thus,
Dailey argues, it was not "fair" to invoke the doctrine of collateral estoppel to prevent
Dailey from attempting to prove her claim against the City.
However, the authorities Dailey cites in support of her argument discuss the
offensive use of collateral estoppel. Here, however, the City asserted the doctrine of
collateral estoppel defensively. "Defensive use of collateral estoppel precludes a plaintiff
from relitigating identical issues by merely 'switching adversaries.'" (Parklane Hosiery
Co. v. Shore (1979) 439 U.S. 322, 329.)
"[W]here collateral estoppel is applied 'offensively' to preclude a defendant from
relitigating an issue the defendant previously litigated and lost, the courts consider
whether the party against whom the earlier decision is asserted had a 'full and fair'
opportunity to litigate the issue." (Roos v. Red (2005) 130 Cal.App.4th 870, 880.) An
26
"argument against offensive use of collateral estoppel is that it may be unfair to a
defendant. If a defendant in the first action is sued for small or nominal damages, he may
have little incentive to defend vigorously, particularly if future suits are not foreseeable."
(Parklane Hosiery Co. v. Shore, supra, 439 U.S. at 330.)
In her complaint, Dailey admits that she seeks the exact same relief based on the
exact same allegations previously made by the POA. As the City prevailed in the prior
action and the plaintiff in this action is a subset of the plaintiff in the prior action, the City
was entitled to assert the doctrine of collateral estoppel defensively so as to preclude
Dailey from forcing it to relitigate identical issues by merely switching adversaries.
Thus, Dailey's "fairness" exception to the collateral estoppel rule does not apply.
Moreover, even if the fairness rule applies to the defensive use of collateral
estoppel, the trial court correctly found that collateral estoppel barred Dailey's second
cause of action.
a. The amount at stake in the prior litigation was not "nominal"
In the prior litigation, the imposed change to the retiree health benefit involved a
change in service eligibility that "established service qualifications of 10 years for a
100% benefit and 5 years for a 50% benefit." (SDPOA v. SDCERS, supra, 568 F.3d at p.
739.)
Dailey asserts that because a City employee cannot retire until he or she has at
least 10 years of service, a 50 percent reduction in the retiree health benefit for police
officers who only have five years of service would result in little to no impact on any
member of the POA because they cannot retiree with just five years of service. Thus,
27
according to Dailey, the amount in controversy in the prior litigation was nominal. This
contention is unavailing.
The service eligibility requirements the City imposed pertained to all police
officers who had pension service from a prior employer who had a reciprocity agreement
with the City that allowed pension service accrued at another agency to count toward
pensionable service time at the City. Under the service eligibility modification to the
retiree health program, in order to qualify for a 50 percent retiree health benefit, a
member of the POA had to have worked at least five years for the City. A full retiree
health benefit required 10 years of actual service at the City.
Because members of the POA potentially lost half of the retiree health benefit
unless and until they actually worked five years for the City and would not receive the
full benefit unless and until they worked 10 years for the City, the POA, on behalf of its
members, had incentive in the prior litigation to seek a ruling that the imposition of these
changes in the service eligibility requirements was invalid. Indeed, the fact the City had
requested this change to the retiree health benefit, but the POA would not agree to it,
shows that the benefit had substantial value to the members of the POA. Therefore,
contrary to Dailey's unfounded argument, the POA, on behalf of its members, had every
incentive in the prior litigation to find the imposition of the change in service eligibility
requirements to be unlawful.
b. Failure to introduce alleged evidence in the prior action
Dailey contends that because the POA's attorneys in the prior action failed to
introduce evidence that she alleged, in this action, would have supported a finding that
28
the retiree health benefit is a vested contractual benefit, relitigation of the issue was
proper in this case.
As the California Supreme Court has held, "'[i]t is the opportunity to litigate that is
important in these cases, not whether the litigant availed himself or herself of the
opportunity.'" (Murray v. Alaska Airlines (2010) 50 Cal.4th 860, 869.) Indeed, in
Murray our high court rejected this very argument made by Dailey: "'The failure of a
litigant to introduce relevant available evidence on an issue does not necessarily defeat a
plea of collateral estoppel. [Citation.] Even a judgment of default in a civil proceeding is
"res judicata as to all issues aptly pleaded in the complaint and defendant is estopped
from denying in a subsequent action any allegations contained in the former complaint."'"
(Id. at p. 871.) Thus, whether or not Dailey believes additional evidence should have
been submitted does not create an exception to the collateral estoppel doctrine.
c. The public interest exception to the doctrine of collateral estoppel
Dailey also contends that collateral estoppel should not be applied because of the
effect it will have on a great many City employees, including herself, who were not
parties to the prior litigation. Dailey argues that the City has taken the decision by the
Ninth Circuit and "parlayed" that into a $142 million windfall. Therefore, Dailey argues,
there is a great public interest in allowing Dailey to relitigate the issue of whether or not
the City's retiree health benefit is a vested contractual right.
However, "[t]he public interest exception [to collateral estoppel] is an extremely
narrow one; we emphasize that it is the exception, not the rule, and is only to be applied
in exceptional circumstances." (Arcadia Unified School Dist. v. State Dept. of Education
29
(1992) 2 Cal.4th 251, 259.) For example, in Arcadia, the California Supreme Court only
approved application of the exception because if the action were barred, "the state of the
law on a matter of statewide importance would remain permanently unclear and
unsettled." (Ibid.)
Here, the facts do not support application of this exception. First, the issue
involved here is not one of statewide importance. Second, the $8,880 annual premium
reimbursement cap on Dailey's retiree health benefits expired on April 1, 2012. The
freeze, therefore, was only in effect for members of the POA or Local 127, American
Federation of State, County and Municipal Employees, who retired between July 1, 2009
and before April 1, 2012. (SDMC § 24.1202, subd. (b)(7).) Therefore, the persons
affected by the prior Ninth Circuit decision is a small subset of the City's employees.
Third, following the entry of judgment by the trial court and prior to the Dailey filing her
opening brief, all of the City's labor unions, including the POA, agreed to and entered
into contracts that modified the retiree health program for the next 15 years. Effective
April 1, 2012, every single City labor union, including the POA, voluntarily agreed to a
new 15-year memorandum of understanding regarding the retiree health benefit.
Therefore, the $8,880 per year freeze of retiree health benefits contained in Ordinance
No. 0-19874 no longer applies.
"[T]he public policies underlying collateral estoppel—preservation of the integrity
of the judicial system, promotion of judicial economy, and protection of litigants from
harassment by vexatious litigation—strongly influence whether its application in a
particular circumstance would be fair to the parties and constitutes sound judicial policy"
30
(Lucido v. Superior Court (1990) 51 Cal.3d. 335, 343) all support the trial court's
decision to afford the prior litigation collateral estoppel in this matter.
The integrity of the court system is maintained by affording the prior decision
collateral estoppel effect in this action as the prior decision of the federal courts was not
erroneous. Neither the district court nor the Ninth Circuit were presented with any
evidence that Dailey or other police officers surrendered their Social Security rights in
1982 in exchange for a promise of retiree health care benefits. This is because Dailey's
own evidence shows that members of the POA never even voted in the City's election to
withdraw from the Social Security system. Therefore, neither Dailey nor any other
member of the POA gave up their rights to Social Security because they did not
participate in Social Security. Rather, Dailey gained the ability to participate in the
retiree health program as a result of labor negotiations.
Dailey's claim of legal malpractice by the POA's attorneys in the prior case, as
alleged in Ellis v. Jackson, DeMarco, Tidus, Peckenpaugh (Super. Ct. San Diego San
Diego County 2010, No. 37-2010-00086284-CU-PN-CTL), does not change the
outcome. This is so because the alleged claims of malpractice have been settled with
Dailey receiving monetary compensation in exchange for dismissing her claims. Barring
Dailey from relitigating the cause of action for which she has now received monetary
compensation based on allegations of malpractice protects the integrity of the judicial
system.
The resolution of the malpractice claim also defeats Dailey's claim that the
promotion of judicial economy, the second of the three doctrinal purposes of collateral
31
estoppel, is not served because the issue was necessarily going to be relitigated in the
malpractice case. As that case has been resolved without any admission of liability and
without a determination of whether or not retiree health is a vested contractual right,
Dailey's argument that relitigation of the claim was inevitable in the malpractice case
does not now support her claim that judicial economy would have been served by
allowing Dailey to relitigate the issue in this case. As the trial court found, "it is
improper to adjudicate [Dailey's] alleged malpractice of its former attorneys [in this
action] as declaratory relief only operates prospectively to declare future rights, rather
than to redress past wrongs. [Citation.] In addition, declaratory relief is only appropriate
where there is a justiciable controversy, no where the dispute is moot, or only
hypothetical or academic. [Citations.] Here, the alleged malpractice of [Dailey's] former
attorney[] is not yet a fact but is a mere conclusion of law or hypothetical."
Third, the trial court's determination that collateral estoppel applied promoted the
third doctrinal purpose of collateral estoppel: protecting the City from harassment by
vexatious litigation. After five years of litigation with the POA, making the City expend
time, energy, money and resources to defend the exact same case in this action is an
example of precisely the type of vexatious litigation the doctrine of collateral estoppel
was designed to prevent.
Thus, all the purposes of collateral estoppel were promoted by the trial court
deciding that Dailey was barred from relitigating whether or not retiree health is a vested
contractual right. Therefore, the trial court did not err when it sustained the City's
demurrer to Dailey's second cause of action.
32
DISPOSITION
The judgment is affirmed. The City shall recover its costs on appeal.
NARES, J.
WE CONCUR:
HUFFMAN, Acting P. J.
HALLER, J.
33
Filed 1/23/14 CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
DENISE DAILEY, D060049
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2010-00094272- CU-OE-CTL) CITY OF SAN DIEGO, ORDER DENYING REHEARING Defendant and Respondent. AND CERTIFYING OPINION FOR PUBLICATION
THE COURT:
Appellant's petition for rehearing is denied.
The opinion in the above-entitled matter filed on December 26, 2013, was not
certified for publication in the Official Reports. For good cause it now appears that the
opinion should be published in the Official Reports and it is so ordered.
HUFFMAN, Acting P. J.
Copies to: All parties
AI Brief
AI-generated · verify before citing
Holding. The court held that the City's retiree health benefit is not a benefit under the City's retirement system, and therefore, an affirmative vote by pension system members was not required to implement a cap on those benefits. Additionally, the court held that the plaintiff's second cause of action was barred by the doctrine of collateral estoppel.
Issues
Whether the City's retiree health benefit constitutes a benefit under the City's retirement system requiring a member vote under Charter section 143.1.
Whether the plaintiff's second cause of action is barred by the doctrine of collateral estoppel based on the Ninth Circuit's decision in SDPOA v. SDCERS.
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“we conclude that the retiree health benefit is not a benefit under the City's retirement system, and therefore an affirmative vote by all members of the pension system was not required to implement the cap on employees' health benefit.”
“We also conclude that Dailey's second cause of action is barred by the doctrine of collateral estoppel.”