Opinion ID: 3064768
Heading Depth: 2
Heading Rank: 1

Heading: Final Offer’s Reduction in DROP Salary Does

Text: Not Affect a Protected Contractual Right Association maintains that DROP members’ salaries are vested pension rights entitled to protection under the Contracts Clause. Appellees respond that DROP salaries are a term of active employment rather than contractual rights and, as such, are subject to reduction without running afoul of constitutional rights. As California courts have noted, “[i]t is well established that public employees have no vested rights to particular levels of compensation and salaries may be modified or reduced by the proper statutory authority” (Tirapelle v. Davis, 26 Cal. Rptr. 666, 678 (Cal. Ct. App. 1993)). Vielehr v. Cal., 163 Cal. Rptr. 795, 797 (Cal. Ct. App. 1980) amplifies on that principle: [P]ublic employment and the rights, duties, and conditions thereof are creatures of statute, not contract, 6926 SAN DIEGO POLICE OFFICERS v. SDCERS and unless and until vested rights to retirement ripen into vested contractual rights, the Legislature may modify conditions of employment without violating vested pension rights which have become protected under the contract clauses of the Constitutions. So the question is whether a member’s DROP salary is considered a term of employment that can be modified without constitutional consequences, or whether it is instead a vested contractual pension right. Appellees point to extensive evidence establishing that a DROP participant is considered an active employee, subject to all the terms and conditions of active employment. Municipal Code provisions, the DROP manual and the MOU in effect at the time of negotiations all confirm that DROP members are considered as “retired”—a legal fiction—only for purposes of the calculation of pension benefits, while they remain subject to all other terms and conditions of employment, including disciplinary actions up to and including termination. Termination by its very nature would reduce a member’s DROP “salary” to zero and is specifically authorized by the terms of the members’ MOU. Instead of trying to show directly that a DROP salary is itself considered a vested pension benefit, Association contends that amounts become vested benefits immediately upon being contributed and credited to a member’s participation account. In so doing it attempts to link the two inextricably, claiming that salary reductions impact the value of a member’s DROP account by reducing the amounts contributed by both members and City and thereby reducing the return earned by the DROP account. But that effort is at odds with the established principle that indirect effects on pension entitlements do not convert an otherwise unvested benefit into one that is constitutionally protected (Vielehr, 163 Cal. Rptr. at 797; Miller v. Cal., 557 P.2d SAN DIEGO POLICE OFFICERS v. SDCERS 6927 970, 974-75 (Cal. 1977)). Miller, for example, concluded that a statutory reduction in the mandatory retirement age that in turn caused a reduction in an employee’s potential pension benefits did not impact a vested contractual right. Although the court recognized that the plaintiff acquired a vested right to a pension upon his acceptance of public employment, it based its rejection of plaintiff ’s position on its holdings that his right to earn increased pension benefits was necessarily contingent on his remaining in state employment and that he had no vested contractual right to continue working for any specific time (id. at 975). In precisely the same way, any contractual rights that Association members have to DROP benefits is contingent upon the salary amounts that they contribute and does not save them from having to establish a vested contractual right in that salary. It is noteworthy that Association’s argument, if adopted, would apply equally to salaries earned by active members who are not participants in the DROP program, because those salaries of course also affect the ultimate pension benefits that those employees are entitled to receive. And yet Association does not dispute that an active member’s salary is a term of employment, not a vested contractual right subject to constitutional protections. In sum, we hold that DROP salary is not a vested right subject to the protection of the Contracts Clause. Association’s claim based on the reduction of such DROP salary fails as a matter of law. B. Final Offer’s Reduction in City’s Pickup Amount Also Does Not Affect a Protected Contractual Right Next Association contends that City’s pickup of a portion of its employees’ retirement contribution is a vested contractual right, so that the 3.2% reduction of that amount imposed by the Final Offer violated the Contracts Clause. Here again 6928 SAN DIEGO POLICE OFFICERS v. SDCERS the relevant inquiry is whether City’s pickup is a vested retirement benefit or a salary item subject to modification or reduction. Association concedes that pickups are a mandatory subject of bargaining, but it nonetheless claims that they are vested retirement benefits such that any reduction must be accompanied by a corresponding benefit. In attempted support of that position Association points to cases dealing with a legislative increase in the employee contribution rate, but that is not the situation here, where the overall employee contribution amount has not been changed—only the employee’s payment toward that amount has been affected. To the extent that the courts in Wisley v. City of San Diego, 10 Cal. Rptr. 765 (Cal. Ct. App. 1961), and Allen v. City of Long Beach, 287 P.2d 765 (Cal. 1955) found a contractual right to the level of the employees’ contribution amounts, the recognized right protected only increases in those total amounts, not the share paid by employees. Rather than citing any direct legal support for its assertion, Association seeks to rely on City’s historical practice of negotiating the amount of pickup only in lieu of or in conjunction with salary increases. Yet that does not bear on the legal classification of City’s pickup amount. Indeed, the very fact that City has historically equated modifications in pickup and salary amounts really confirms that City has treated pickups as a compensation term, not a retirement benefit.10 Appellees, on the other hand, offer evidence establishing that City’s pickup is considered equivalent to a negotiated salary item by both Association and other California cities. San 10 Association’s argument that employee contributions, and thus pickup amounts, are made on a pre-tax basis is equally unavailing. Pickups are by their very nature related to retirement payments. That the tax treatment of those amounts recognizes that fact sheds no light on whether City’s contribution is a vested retirement benefit protected by the Contracts Clause. SAN DIEGO POLICE OFFICERS v. SDCERS 6929 Diego City Charter art. IX, § 143 (emphasis added) expressly states that “[t]he City shall contribute annually an amount substantially equal to that required of the employees for normal retirement allowances, as certified by the actuary, but shall not be required to contribute in excess of that . . .” In addition, the MOU between Association and City in effect before the 2005 labor negotiations states that in providing for City’s pickup amount, “[t]he employee, upon termination, will have no vested right in the amount so contributed by City.” It simply cannot be said that City’s pickup is a vested contractual benefit entitled to protection under the Contract Clause. As a result, the Final Offer’s reduction in the pickup amount also did not violate any of Association’s constitutional rights. C. Lastly, Final Offer’s Modifications to Employee Eligibility Requirements for Retiree Health Benefits Also Do Not Affect a Protected Contractual Right Association’s third and final contention stemming from the 2005 labor negotiations is that the modifications imposed by the Final Offer on employee eligibility requirements for retiree health benefits impaired its vested contractual rights. Those requirements, applicable only to current employees hired before July 1, 2005, established service qualifications of 10 years for a 100% benefit and 5 years for a 50% benefit. Citing Thorning v. Hollister Sch. Dist., 15 Cal. Rptr. 2d 91 (Cal. Ct. App. 1992) and Cal. League of City Employee Ass’ns v. Palos Verdes Library Dist., 150 Cal. Rptr. 739 (Cal. Ct. App. 1978), Association argues that the district court erroneously characterized the retiree health benefits at issue as longevity-based benefits rather than vested rights. Cal. League, id. at 741-42 held that certain fringe benefits for long-term employees—a longevity salary increase, increased 6930 SAN DIEGO POLICE OFFICERS v. SDCERS vacation time and a paid sabbatical—were vested contractual rights subject to constitutional protection. In determining whether the benefits were “fundamental,” the court evaluated “the effect of it in human terms and the importance of it to the individual in the life situation” (id. at 741, quoting Bixby v. Pierno, 481 P.2d 242, 252 (Cal. 1971)). Thorning, 15 Cal. Rptr. 2d at 95-97 found that plaintiffs, retired school district board members, had a vested contractual right to the retiree health benefits expressly granted to them by an official declaration of policy during their term of public office. Using the framework established by Cal. League, the court found that the benefits were fundamental and could not be unilaterally terminated (id. at 96). But we find the reasoning in Cal. League unpersuasive because the court there did not acknowledge the heavy burden on a plaintiff to “overcome [the] well-founded presumption” (Robertson, 466 F.3d at 1118) that a legislative body does not intend to bind itself contractually, nor did it look to the legislative body’s intent to create vested rights (id. at 1117). Instead we find the analysis in San Bernardino Pub. Employees Ass’n v. City of Fontana, 79 Cal. Rptr. 2d 634 (Cal. Ct. App. 1998) far better attuned to the principles that we have articulated in Robertson. That California Court of Appeal’s decision held that longevity benefits, including pay and leave accrual increases based on longevity, as provided for by MOUs between the city and its bargaining groups, “could not have become permanently and irrevocably vested as a matter of contract law, because the benefits were earned on a yearto-year basis under previous MOU’s that expired under their own terms” (id. at 639). In the course of its extensive examination of the caselaw as to pension rights and vested retirement benefits, the court (id. at 638 (citation omitted)) criticized the Cal. League court’s analysis: The California League court’s reliance on Bixby is misplaced. Bixby merely established a rule of judicial review applicable to adjudicatory orders or deciSAN DIEGO POLICE OFFICERS v. SDCERS 6931 sions of public agencies. The case cannot fairly be read as establishing a new measure of substantive rights to be protected under the contract clause. That inquiry into the legislative intent to create a contract is consistent with our analysis as to the existence of a contract (see Robertson, 466 F.3d at 1117-18). Were the recognition of constitutional contract rights to be based on the importance of benefits to individuals rather than on the legislative intent to create such rights, the scope of rights protected by the Contracts Clause would be expanded well beyond the sphere dictated by traditional constitutional jurisprudence. By contrast, as with the benefits at issue in San Bernardino, Appellees have presented evidence showing that the retiree medical benefits here were considered a term of employment that could be negotiated through the collective bargaining process. As such, they were longevity-based benefits that continued only insofar as they were renegotiated as part of a new agreement and were not protectible contract rights. Thus the last of Association’s arguments that the imposition of the 2005 Final Offer affected any of its rights under the Contract Clause fails as well. Appellees are entitled to summary judgment on Association’s claims premised on that Final Offer. 2. Takings Clause and Conspiracy Claims Far less discussion is required to dispatch Association’s Takings Clause and conspiracy claims arising from the labor negotiations that led to the Final Offer. Because, as we have held, the Final Offer did not affect any constitutionally protected interest, those claims also fail as a matter of law. As to the first of those claims, it founders under the principle succinctly stated in McIntyre v. Bayer, 339 F.3d 1097, 1099 (9th Cir. 2003)): 6932 SAN DIEGO POLICE OFFICERS v. SDCERS In order to state a claim under the Takings Clause, a plaintiff must first establish that he possesses a constitutionally protected property interest. And by the same token, the absence of any actionable constitutional violation negates by definition the existence of a conspiracy to violate constitutional rights (Woodrum v. Woodward County, 866 F.2d 1121, 1126 (9th Cir. 1989)). In summary, we also affirm the district court’s grant of summary judgment for Appellees on Association’s Takings Clause and conspiracy claims that are premised on City’s imposition of the 2005 Final Offer. And that means Association has struck out on all substantive aspects of its appeal. Final Judgment as to Costs and Attorneys’ Fees That leaves for consideration the parties’ separate crossappeals of the district court’s final judgment as to costs and attorneys’ fees. Association argues that the district court erred in finding that the Appellees were “prevailing parties” entitled to an award of costs—a finding of fact that we review for clear error (Sablan v. Dep’t of Fin., 856 F.2d 1317, 1324 (9th Cir. 1988)), although reversal is required if the district court applied incorrect legal standards to reach that finding (Lummi Indian Tribe v. Oltman, 720 F.2d 1124, 1125 (9th Cir. 1983)). For their part Appellees contend that although the district court was correct in finding that they were prevailing parties, the court erred (1) by summarily denying Appellees attorneys’ fees without giving them an opportunity to set forth their arguments in a post-judgment motion and (2) by failing to announce its findings of fact and conclusions of law to explain its denial of an award of attorneys’ fees.11 In those 11 Each of Association and Appellees argues that the other’s appeal as to the award of costs should be deemed frivolous. But neither party submitted the motion required under Fed. R. App. P. 38. In the absence of such a separately filed motion, we cannot grant a party its attorneys’ fees and costs in defending an appeal, notwithstanding the potential merit of any claim (Higgins v. Vortex Fishing Sys., Inc., 379 F.3d 701, 709 (9th Cir. 2004)). SAN DIEGO POLICE OFFICERS v. SDCERS 6933 respects we review such denial for abuse of discretion (Webb v. Ada County, 195 F.3d 524, 526 (9th Cir. 1999)).
Rule 54(d)(1) provides that costs shall be allowed to the prevailing party unless a federal statute, the rules or a court directs otherwise. Courts consistently confirm that “[a] party in whose favor judgment is rendered is generally the prevailing party for purposes of awarding costs under Rule 54(d)” (d’Hedouville v. Pioneer Hotel Co., 552 F.2d 886, 896 (9th Cir. 1977); accord, such cases as Amarel v. Connell, 102 F.3d 1494, 1523 (9th Cir. 1997)). Nor is it necessary for a party to prevail on all of its claims to be found the prevailing party (see, e.g., K-2 Ski Co. v. Head Ski Co., 506 F.2d 471, 477 (9th Cir. 1974)). Despite the district court’s having granted summary judgment to Appellees on all of Association’s federal claims, Association contends that it should be considered the prevailing party. To that end Association seeks to call into play the definition in Farrar v. Hobby, 506 U.S. 103, 111-12 (1992): In short, a plaintiff “prevails” when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant’s behavior in a way that directly benefits the plaintiff. Farrar, id. at 113 further explained that “[n]o material alteration of the legal relationship occurs until the plaintiff becomes entitled to enforce a judgment, consent decree, or settlement against the defendant.” Association seeks to emulate the alchemists in the Middle Ages in its effort to transmute the base metal of its total loss on the merits into the gold of “prevailing party” status by asserting that the district court’s order materially altered its 6934 SAN DIEGO POLICE OFFICERS v. SDCERS relationship with Appellees. That assertion (1) points to the adverse finding that City’s pickup amount was a salary element open to negotiation and (2) attempts to turn that into the possibility that Association could force Appellees to pay back wages and retirement benefits that had not been calculated because of the belief that City’s pickup amount was not part of the employees’ salaries. That just won’t work, and not just because any purported “prevailing party” status for Association is wholly counterintuitive. After all, Association has obtained no judgment, consent decree or settlement that it can enforce against Appellees —an express prerequisite to such status under Farrar. Its unproved and attenuated prospect of a better chance to assert a claim for the payment of wages and retirement benefits in some future case finds no support in the caselaw for “prevailing party” status in this case. By obtaining summary judgment on all of Association’s federal claims, and with no claims remaining against them in the district court, Appellees were clearly the prevailing parties in this federal action. As such, they were entitled to the award of costs as decreed by the district court.
After the district court’s extensive discussion of the award of costs to Appellees, it simply went on to say “[n]either party is entitled to recover its attorneys’ fees.” City and Individual Defendants appeal that denial of attorneys’ fees, complaining that they were not given an opportunity to make a Rule 54(d)(2) motion and that the district court provided no explanation of its ruling. In response Association argues (1) that Appellees waived their right to challenge the district court’s order by failing to make a Rule 54(d)(2) motion after the court’s substantive judgment and (2) that no findings of fact and conclusions of law were mandated by Rule 54(d)(2)(C) SAN DIEGO POLICE OFFICERS v. SDCERS 6935 because the district court’s determination was not made in response to a Rule 54(d)(2) motion. It is of course true that it has been firmly established for nearly three decades that the award of attorneys’ fees under Section 1988 emulates George Orwell’s Animal Farm: “Some animals are more equal than others.” In sharp contrast to the near-universal fee awards to prevailing Section 1983 plaintiffs, Hughes v. Rowe, 449 U.S. 5 (1980) (per curiam) adopted the same standard for Section 1988 awards that the seminal opinion in Christiansburg Garment Co. v. EEOC, 434 U.S. 412, (1978) had announced for a prevailing Title VII defendant: It “may recover attorney’s fees from the plaintiff only if the District Court finds that the plaintiff ’s action was frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith” (Hughes, 449 U.S. at 14, quoting Christiansburg Garment, 434 U.S. at 421). But the problem here is that we are left to speculate as to whether the unexplained denial of a fee award by the experienced district judge (formerly Chief Judge of her District Court) was predicated on an evaluation of Association’s claims in those terms or on some other ground. Under the circumstances we cannot engage in an informed review of her decision. Accordingly we remand the portion of the district court’s order that denied Appellees an award of attorneys’ fees. On remand the provisions of Rule 54(d)(2) shall apply.