UT – Court debates pension case resolution 3-11-19

Joe Flynn, Retiree

By David Garrick

State appellate judges expressed support Monday for requiring San Diego to financially compensate 4,000 city employees who don’t have pensions because of a 2012 voter-approved measure called Proposition B that was placed on the ballot illegally.

The three-judge panel of California’s Fourth District Court of Appeal expressed reluctance to invalidate Proposition B, indicating there needs to be a separate legal process allowing for participation by citizen proponents of the measure.

If the judges opt against invalidating the proposition when they issue their ruling this spring, it could delay a final resolution of the case for months or even years.

Monday’s oral arguments at the appeals court in downtown San Diego were ordered by the state Supreme Court as part of its ruling in the case last August.

Proposition B was approved by 65 percent of city voters in June 2012. It made San Diego the only California city to discontinue traditional pensions for new hires, who instead have 401(k)-style retirement plans.

Four labor unions challenged the legality of the pension cuts, saying then-Mayor Jerry Sanders improperly championed Proposition B but didn’t negotiate with labor unions before pursuing it.

After winning their case with the state labor board, the unions lost on appeal in 2017 in the same court that heard oral arguments Monday.

But last August the state Supreme Court agreed with the unions, saying Proposition B was not a true citizen’s initiative because Sanders used his power and influence as mayor to support it. The court said Sanders was obligated to meet with city union leaders before placing the measure on the ballot.

That ruling overturned the Fourth District Court of Appeal decision that the pension cuts were valid and that Sanders acted appropriately.

While the state appellate court wrestles with how to handle that ruling, the city has separately appealed the case to the U.S. Supreme Court, contending that the state ruling violates Sanders’ right to free speech.

The U.S. Supreme Court is scheduled to announce next Monday whether it will take the case.

Meanwhile, California’s Fourth District Court of Appeal faced two major questions Monday.

The first was how the city should compensate workers hired since 2012 when pensions were eliminated for all new city employees except police officers.

The second was whether Proposition B should be invalidated or left in place, which would mean the unions would need to pursue a separate legal course to get it invalidated.

The three-judge panel raised no concerns about the state labor board’s conclusion that employees hired since pensions were eliminated must be made whole.

The labor board ruled in 2015 that making employees whole would require the city compensating them

for the lost pensions and paying them interest penalties of 7 percent.

The labor board, however, said the city could count against its costs the many millions it already has contributed to the 401(k)-style plans.

Estimates of the city’s costs to make the affected employees whole have ranged from $20 million to $100 million, depending on a variety of factors.

Travis Phelps, an attorney for the city, argued Monday that making employees whole presents significant challenges.

“It would be very problematic,” he said. “For example, you have very complicated tax issues.”

The appellate judges didn’t appear to find that argument convincing, repeatedly referring to the “make whole remedy” in positive terms.

“The city dragged this issue through an otherwise clear path by having the mayor participate,” Justice Richard Huffman said. “There’s got to be some remedy to that.”

Ann Smith, an attorney representing the four labor unions, stressed to the appellate judges that they have limited grounds for amending the ruling by the state labor board, called the Public Employment Relations Board.

“You have not been presented with any compelling argument that PERB abused its discretion,” she

said. “Courts have defined an abuse of discretion to mean that it’s a patently unreasonable remedy.”

Smith appeared to have less success convincing the appellate judges that they should invalidate Proposition B.

Instead, they indicated a preference for leaving it in place until the labor unions complete a separate legal process for removing it called “quo warranto,” which would begin in Superior Court.

While the city can agree to make employees affected by the pension cuts financially whole, leaving the measure in place makes that more difficult by preventing the city from retroactively creating pensions for those employees.

Smith argued that the state Supreme Court ordered the appeals court to invalidate Proposition B by directing the appeals court to enact “an appropriate judicial remedy” in the case.

“The (state) Supreme Court did not tell you to invalidate, but they dropped all the bread crumbs on that trail,” said Smith, expressing frustration that the case might have to be re-litigated.

Huffman said the lengthier process would allow participation by the citizen proponents who helped get Proposition B approved, noting they were not allowed to provide input when PERB considered the case.

“The notion we can invalidate their measure, based upon PERB’s facts, without the participation of the proponents, strikes me as not the kind of due process I’m used to,” Huffman said.

He also disagreed with Smith about what the Supreme Court ordered.

“I’m long past reading Supreme Court tea leaves,” he said. “They didn’t tell us to invalidate it.”

Justice Judith McConnell also expressed interest in the possibility of making affected employees whole, but stopping short of invalidating Proposition B.

She asked Smith what would happen in such a circumstance.

Smith said whatever compensation is determined to make employees whole would continue to accrue until Proposition B is invalidated by the courts.

“The city would be required to make employees whole for losses indefinitely into the future,” she said.

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Twitter: @UTDavidGarrick