Opinion ID: 3065901
Heading Depth: 3
Heading Rank: 1

Heading: Retiree Health Benefits

Text: 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 6824 HARRIS v. ORANGE 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,1 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 1 The retiree medical program refers to all retiree health benefits, including the Subsidy and Grant. HARRIS v. ORANGE 6825 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 6826 HARRIS v. ORANGE 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 Retired Emps. Ass’n of Orange Cnty., Inc. v. Cnty. of Orange, 610 F.3d 1099 (9th Cir. 2010). On November 21, 2011, the California Supreme Court answered the certified question, holding that under California law, a vested right to health benefits for retired county employees can be implied, under certain circumstances, from a county ordinance or resolution. See Retired Emps. Ass’n of Orange Cnty., Inc. v. Cnty. of Orange, 266 P.3d 287, 301 (Cal. 2011). D. Retirees’ Lawsuit On January 22, 2009, while summary judgment motions were pending in the REAOC lawsuit, the Retirees filed a class action in the Central District of California, and it was assigned to the same district judge presiding over the REAOC lawsuit. The Retirees filed an amended complaint on February 3, 2009, alleging, on behalf of thousands of retirees (including REAOC members and non-members), that the County’s restructuring of its retiree medical program constituted an impairment of contract and denial of due process, in violation of 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 the FEHA. The Retirees sought damages and injunctive and declaratory relief. They alleged that the Subsidy was an implied term of the MOUs and that they had a contractual right to receive the Grant, as its terms were reflected in the MOUs in place on the dates they retired. The suits filed by the Retirees and REAOC overlapped, to the extent both sought declaratory and injunctive relief related to the County’s elimination of the Subsidy, alleging the same theories of contract and constitutional law. One of the class representatives, James McConnell, had filed a timely administrative complaint with the California DepartHARRIS v. ORANGE 6827 ment of Fair Employment and Housing on December 30, 2008. In his administrative complaint, he stated that: For 23 years the county maintained one set of health care plans for active and retired employees, and charged premiums for coverage under those plans based on a combined pool of all active and retired employees. Beginning in 2008 the county removed retired employees from the plans and ‘split the pool,’ for the express purpose of eliminating ‘older, less healthy’ participants from the plans. The premiums for retired employees rose dramatically as a result, including my own premiums, which increased by hundreds of dollars per month. On April 7, 2010, the County moved, pursuant to Federal Rule of Civil Procedure 12(c), for judgment on the pleadings. On March 29, 2011, the district court granted the motion, without giving the Retirees leave to amend. The district court found that the Retirees’ Subsidy claims were barred by claim preclusion, because there was an identity of claims between those in the Retirees’ lawsuit and the REAOC lawsuit, and because there was privity between the Retirees and REAOC. The district court determined that the Retirees had been adequately represented by REAOC, because the Retirees’ and REAOC’s interests were aligned and because REAOC understood itself to be acting in a representative capacity. The district court also found that the Retirees’ Grant claims should be dismissed, because the Retirees had not pled that any “explicit legislative or statutory authority” required the County to provide the Grant in perpetuity. Finally, the district court found, for purposes of the FEHA claim, that the Retirees failed to exhaust administrative remedies because Mr. McConnell’s administrative complaint did not state it was “on behalf of” other class members. The Retirees timely appealed.