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Gaylan Harris; Jerry v. County of Orange

June 8, 2012

GAYLAN HARRIS; JERRY JAHN; JAMES MCCONNELL, ON BEHALF OF THEMSELVES AND OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
v.
COUNTY OF ORANGE, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Central District of California Andrew J. Guilford, District Judge, Presiding D.C. No. 8:09-cv-00098-AG-MLG

The opinion of the court was delivered by: Lynn, District Judge:

FOR PUBLICATION

OPINION

Argued and Submitted October 11, 2011-Pasadena, California

Before: Harry Pregerson and Dorothy W. Nelson, Circuit Judges, and Barbara M.G. Lynn, District Judge.*fn1

Opinion by Judge Barbara M. G. Lynn

OPINION

Named plaintiffs, on behalf of thousands of retired County employees participating in County-sponsored health care plans (collectively, the "Retirees"), filed this lawsuit against the County of Orange (the "County"), challenging changes it made to the structure of two health benefits. The Retirees appeal the district court's order granting a motion for judgment on the pleadings filed by the County. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse and remand. To decide this case, we must address four issues: (1) whether we take judicial notice of a declaration and five Memoranda of Understanding ("MOUs"); (2) whether the district court erred in holding that the Retirees' Subsidy claim was barred by claim preclusion; (3) whether the district court erred in holding that there was no explicit authority requiring the County to provide a benefit in perpetuity; and (4) whether the district court erred in holding that the Retirees failed to exhaust their administrative remedies.

I. Factual and Procedural Background

The Retirees allege that the County's restructuring of their health benefits violated the United States and California Constitutions, and was a breach of contract, and constituted discrimination against the Retirees on account of their age, in violation of California's Fair Employment and Housing Act, California Government Code § 12940 et seq. ("FEHA").

A. Retiree Health Benefits

From 1985 through 2007, the County subsidized health insurance premiums for its retired employees by pooling active and retired employees into one collective group of health plan participants (the "Retiree Premium Subsidy" or the "Subsidy"). Although the County's program provided retirees and active employees the same benefits at the same costs, the pooling of the two groups had the effect of lowering retiree premiums below what their actual rates would otherwise have been, i.e., the program subsidized retired employees. From 1993 through 2007, retired employees also received a monthly grant to be applied toward the cost of their health insurance coverage, referred to as the Retiree Medical Grant (the "Grant"). The terms and conditions of the Grant were set forth in separate sections of the collective bargaining agreements, known as MOUs, governing the relationship between the County and its active and retired employees. For the small number of retirees not represented by unions, the terms and conditions were described in Personnel and Salary Resolutions. The monthly grant for retirees was calculated by multiplying the employees' years of service at the time of retirement by a fixed-dollar amount ("the Grant Multiplier"). The initial Grant Multiplier was $10, but it increased every year by up to 5% to reflect inflation.

B. The County Restructures the Retiree Medical Program

Beginning in 2004, the County engaged in negotiations with labor unions to restructure its retiree medical program,*fn2 which was underfunded and in danger of insolvency. On September 12, 2006, the County's Board of Supervisors formally approved an agreement with the Orange County Employees Association. The agreement provided, in pertinent part, that effective January 2008, (1) the County would separate retired and active employees into different health plans or pools to set premiums; (2) the maximum increase for the Grant Multiplier would be reduced from 5% to 3%; and (3) once a Retiree became eligible for Medicare, the Grant would be reduced by 50%. In order to obtain the unions' agreement to forego the pooling structure that created the Subsidy and to reduce the Grant benefits, the County agreed to pay active employees higher wages, but the Retirees received nothing. The Retirees allege that as a result of the County's decision to stop pooling active and retired employees and to reduce the Grant, their health care premiums increased significantly. The Retirees allege they cannot afford the increases and that they have had to abandon their County-sponsored health insurance plans, and obtain coverage that costs less but provides lesser benefits.

C. The Retired Employees Association of Orange County, Inc. ("REAOC") Lawsuit

On November 5, 2007, REAOC, a California non-profit corporation representing more than 4,600 County retirees and their spouses, filed suit in the Central District of California on behalf of thousands of retired County employees, challenging only the County's decision to stop pooling active and retired employees, and seeking declaratory and injunctive relief. REAOC alleged the existence of an implied promise to continue the Subsidy. On December 14, 2007, the County moved to dismiss REAOC's suit, alleging, in part, that REAOC lacked standing to sue for damages on behalf of its members. The district court, in denying the County's Motion to Dismiss, observed that REAOC's Complaint did not and could not seek damages. On December 22, 2008, REAOC and the County argued cross-motions for summary judgment. On June 19, 2009, the district court granted the County's Motion for Summary Judgment, finding that the County was not contractually obligated to provide Retirees with pooling throughout their lifetimes, because there was no evidence of "any explicit legislative or statutory authority" requiring the County to do so, and because that obligation could not arise by implication from past practices and course of dealing. Retired Emps. Ass'n of Orange Cnty., Inc. v. Cnty. of Orange, 632 F. Supp. 2d 983, 987 (C.D. Cal. 2009). REAOC appealed that judgment to this Court. On June 29, 2010, after oral argument, this Court certified to the California Supreme Court the question of whether, as a matter of California law, a California county and its employees can form an implied contract that confers on retired county employees vested rights to health benefits, and the appeal from the district court was stayed pending the California Supreme Court's determination of the certified question. See ...


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