Court Opinion

ID: 4279211
Source: CourtListenerOpinion
Date Created: 2018-05-29 20:02:17.128153+00
Date Added: 2024-06-11T14:34:31.273790
License: Public Domain

Filed 5/29/18
                            CERTIFIED FOR PUBLICATION

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                             THIRD APPELLATE DISTRICT
                                           (Sacramento)
                                               ----

PUBLIC EMPLOYEES’ RETIREMENT                                   C083355
SYSTEM,
                                                               (Super. Ct. No.
                Plaintiff and Appellant,              34-2016-00196269-CU-MC-GDS)

        v.

SANTA CLARA VALLEY
TRANSPORTATION AUTHORITY,

                Defendant and Respondent.

PUBLIC EMPLOYEES’ RETIREMENT                                   C083961
SYSTEM,
                                                               (Super. Ct. No.
                Plaintiff and Appellant,              34-2016-00196269-CU-MC-GDS)

        v.

AMALGAMATED TRANSIT UNION
LOCAL 1555,

                Defendant and Respondent.

     APPEAL from judgments of the Superior Court of Sacramento County, David I.
Brown, Steven H. Rodda, Judges. Affirmed.

                                                1
       Xavier Becerra, Attorney General, Thomas S. Patterson and Marc LeForestier,
Assistant Attorneys General, Tamar Pachter and Nelson R. Richards, Deputy Attorneys
General for Plaintiff and Appellant.

      Robert Fabela and Richard North for Defendant and Respondent Santa Clara
Valley Transportation Authority.

      Leonard Carder, Peter Saltzman, Kate Hallward, and Craig Schechter for
Defendant and Respondent Amalgamated Transit Union Local 1555.

       California’s Public Employees’ Retirement System (CalPERS) (Gov. Code,
§ 20002),1 as opposed to the board that administers the system (§ 9353), filed a
complaint seeking declaratory relief regarding the proper interpretation of the effect of
section 7522.02, subdivision (a)(3) (hereafter section 7522.02(a)(3)) on the pension
benefits of transit workers. The CalPERS executive office had announced its own
interpretation, which resulted in over 400 pending administrative appeals. As
representative parties, the CalPERS executive office named as defendants a transit
agency (the Santa Clara Valley Transportation Authority (Santa Clara Transit)) and an
employee representative for a different Bay Area transit agency (the Amalgamated
Transit Union Local 1555 (Local 1555)), which had been supporting the arguments of
their employees and members, and had filed administrative appeals of their own.

       Santa Clara Transit filed a demurrer, which the trial court sustained, entering
judgment in its behalf. Local 1555 then filed a motion for judgment on the pleadings,
which the trial court granted, entering a separate judgment in its behalf. In each ruling,
the trial court concluded that the CalPERS executive office was subject to the procedural
prerequisite of the exhaustion of administrative remedies, as the issue was pending in the
appeals before the CalPERS board, and the CalPERS executive office had not established
any exception to exhaustion in its allegations. The CalPERS executive office separately

1 Undesignated statutory references are to the Government Code.

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appealed from each judgment. We have consolidated the appeals for purposes of
consideration and argument.

       The CalPERS executive office continues to assert it may bypass the process in
CalPERS regulations for administrative appeals to the CalPERS board and proceed
directly to the trial court to obtain a declaratory judgment on its interpretation of section
7522.02(a)(3). In its response to supplemental briefing that we requested, it also
contends that it is not subject to the general rule that an action for declaratory relief is not
appropriate for the review of administrative decisions in lieu of a petition for a writ of
mandate. (City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1466-1467 (City of
Pasadena).) Neither position is tenable. We shall affirm the judgments.

                  FACTUAL AND PROCEDURAL BACKGROUND
       There is little we need to add to our introduction other than procedural details. As
fascinating as the underlying substantive issue of pension benefits may be, it is not before
us. We provide a quick précis in order to provide context for the dispute.

       Effective January 1, 2013, the Legislature revised public employee pension
benefits for new hires by enacting the California Public Employees’ Pension Reform Act
of 2013 (PEPRA) (§ 7522 et seq.), generally reducing benefits under the existing
structure in order to lower the cost of the pension system. (See State of California v. U.S.
Dept. of Labor (E.D.Cal. 2016) 155 F.Supp.3d 1089, 1093 (State of California)). We are
not concerned with the details of the reform.

       The federal government disputed the application of the PEPRA to transit workers
as an interference with federal law, and sought to withhold transportation grants. (State
of California, supra, 155 F.Supp.3d at p. 1094.) In response, the Legislature enacted
section 7522.02(a)(3) as an urgency measure in October 2013, exempting transit workers
from the PEPRA until January 1, 2015, or until there was a federal district court ruling

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that the PEPRA did not interfere with federal law, whichever came first. (See Stats.
2013, ch. 527, §§ 1, 3.) The State of California also brought suit against the federal
Department of Labor in a federal district court, obtaining summary judgment in its behalf
in a decision filed on December 30, 2014. (California v. U.S. Dept. of Labor (E.D.Cal.
2014) 76 F.Supp.3d 1125, 1148; see State of California, supra, 155 F.Supp.3d at
p. 1094.)

       Soon thereafter, the CalPERS executive office announced in a circular letter2
dated February 25, 2015, that the exemption in section 7522.02(a)(3) had expired by its
own terms. Hereafter, the CalPERS executive office would treat all transit workers hired
between January 1, 2013, and December 29, 2014, as accruing benefits under the old
system during that period, and thereafter accruing the new limited PEPRA pension
benefits starting on December 30, 2014 (along with those hired on or after Dec. 30).

       Not surprisingly, “[o]ver 400 of those employees then filed administrative appeals
challenging [the] administrative action and interpretation of PEPRA. Several [employee
representatives], including . . . Local 1555, raised the same challenges . . . on behalf of
their members[, as well as assisting in their appeals]. [¶] [Santa Clara Transit] also filed
an administrative appeal [in December 2015] on behalf of its employees” after the
CalPERS executive office rejected its informal efforts to resolve the matter.

       Although section 20134 accords the CalPERS board discretion to hold a hearing
for the determination of any question regarding rights under the retirement system, the
board has exercised its discretion to enact regulations that provide for an administrative
appeal to the CalPERS board of the actions of its executive office (Cal. Code Regs., tit. 2,
§§ 555, 555.1), which specifically state in part, “Any applicant filing an appeal shall be

2 A circular letter announces the adoption of an interpretation of existing statutes or
regulations as a prelude to enforcement, which does not have the status of a formal
regulation. (Bernard v. City of Oakland (2012) 202 Cal.App.4th 1553, 1565-1566.)

                                              4
entitled to a hearing.” (Cal. Code Regs., tit. 2, § 555.2.) The hearings are to be
conducted in accordance with the Administrative Procedures Act before a hearing officer,
who refers any proposed decision to the CalPERS board. (Cal. Code Regs., tit. 2,
§ 555.4.) Nonetheless, the complaints do not indicate that a hearing or an appeal to the
CalPERS board ever took place. Instead, the CalPERS executive office simply sought a
declaration that its interpretation of the effect of the statutory temporary exemption was
correct.

       Santa Clara Transit demurred on the basis of a failure to exhaust the administrative
remedy to which it was entitled under the CalPERS regulations. The trial court agreed.
It concluded the CalPERS executive office could not disregard the CalPERS regulations
giving an entitlement to an appeal to the CalPERS board, that exhaustion of
administrative remedies is a doctrine equally applicable to an executive office of an
agency, and that the CalPERS executive office had failed to establish that the CalPERS
board would adhere to the executive office’s statutory interpretation. Local 1555 initially
took a different tack, filing an answer. After Santa Clara Transit prevailed, Local 1555
amended its answer to assert the failure to exhaust administrative remedies and sought
judgment on the pleadings on this basis. The trial court rejected the CalPERS executive
office’s efforts to rely on federal law to persuade it to come to a different conclusion, and
again noted that “[w]hile [the CalPERS] executive office announced [its] considered
interpretation of § 75[2]2.02(a)(3), the administrative appeal is before [the CalPERS]
board, and [the CalPERS executive office] has not positively stated that its board would
not adopt an independent Administrative Law Judge’s Proposed Decision that refuted the
position of [the CalPERS] executive office.”

                                              5
                                       DISCUSSION

1.0    Declaratory Relief Is Not Available
       In City of Pasadena, supra, 228 Cal.App.4th 1461, the Department of Finance had
made a final administrative determination regarding the municipality’s entitlement to
property tax revenues for the payment of certain obligations; the municipality sought to
challenge this determination in an action for declaratory relief. We held that the trial
court erred in granting preliminary relief to the municipality because it was not entitled to
any form of declaratory relief in this context, under the principle that declaratory relief is
not an appropriate means of reviewing administrative determinations. (Id. at p. 1466.)
We relied on authority that found declaratory relief inappropriate where it challenges an
administrative agency’s application of legal principles to a party. (State of California v.
Superior Court (1974) 12 Cal.3d 237, 249; Tejon Real Estate, LLC v. City of Los Angeles
(2014) 223 Cal.App.4th 149, 154-155.)

       Tracing this line of authority further back, we come to Walker v. Munro (1960)
178 Cal.App.2d 67 (Munro), in which parties charged with violating alcohol regulations
sought declaratory relief—in the midst of the enforcement proceedings—that the statutes
and regulations were unconstitutional and could not be enforced against them. (Id. at
pp. 69-70.) Finding that a failure to exhaust administrative remedies precluded
declaratory relief, Munro stated, “The declaratory relief provisions do not independently
empower the courts to stop or interfere with administrative proceedings by declaratory
decree.” (Id. at p. 72; accord, Imperial Mutual Ins. Co. v. Caminetti (1943)
59 Cal.App.2d 501, 505-506 (Imperial Mutual).) There is also the curious case of
Zetterberg v. State Dept. of Public Health (1974) 43 Cal.App.3d 657 (Zetterberg), in
which citizen plaintiffs sought a declaration that the agency had the concurrent power and
duty to enforce pollution standards along with the Air Resources Board. (Id. at pp. 659-
660.) It concluded that declaratory relief was not the mechanism for challenging an

                                              6
administrative development of policy; “[a] difference of opinion as to the interpretation
of a statute as between a citizen and a governmental agency does not give rise to a
justiciable controversy [citation] and provides no compelling reason for a court to attempt
to direct the manner by which the agency shall administer the law.” (Id. at pp. 663-664.)

       We asked the parties to address this principle in supplemental briefing. The two
defendants are quick to concur that this represents an independent basis for affirming the
judgments. The CalPERS executive office begs to differ.

       The CalPERS executive office first contends this principle should not apply to an
administrative agency because it cannot seek judicial review of its own actions. This is
being obtuse. CalPERS, if its action is ultimately challenged after its board adjudicates
the issue, has the opportunity to defend its action in a judicial forum.

       The CalPERS executive office also asserts that its issuance of an interpretive
policy is not akin to the adjudicative acts in specific cases for which review through a
collateral action for declaratory relief is inappropriate. It cites Voss v. Superior Court
(1996) 46 Cal.App.4th 900, 923, which sanctioned review through declaratory relief of a
quasi-legislative administrative action (in that case, a marketing order), but that action
(which is akin to a rule, regulation, or statute) is not the same as seeking a judicial
imprimatur for the agency policy at issue in the present case (as in Zetterberg, supra,
43 Cal.App.3d 657) that is to be applied in pending cases (as in Munro, supra,
178 Cal.App.2d 67). It is true that Venice Town Council, Inc. v. City of Los Angeles
(1996) 47 Cal.App.4th 1547, Californians for Native Salmon etc. Assn. v. Department of
Forestry (1990) 221 Cal.App.3d 1419, and Bess v. Park (1955) 132 Cal.App.2d 49 each
sanctioned review by means of declaratory relief of an agency’s formulation of a policy
premised on its interpretation of a governing statute that was not in the context of a
specific adjudication. But in each case the challenge was to an agency’s policy of
refusing to apply governing law. (Venice Town Council, supra, at p. 1566 [in addition to

                                               7
case at hand, challenge generally to adding an impermissible factor to permit reviews];
Native Salmon, supra, at pp. 1422-1424, 1428-1429 [in addition to case at hand,
challenging process for evaluating timber plans]; Bess, supra, at p. 52 [refusal to respond
to complaint].) Whatever the merit to the reasoning in this line of cases (which we do not
determine), each of the cases involves a request for a general declaration divorced from
its application of a specific case under consideration, unlike the present case in which the
declaration will be applied in pending administrative proceedings (as in Munro, supra,
178 Cal.App.2d 67).

       In short, the CalPERS executive office seeks in the present case to have the
judicial branch intrude into the formulation of administrative policy, and issue a ruling to
be applied in ongoing administrative proceedings before the CalPERS board.
Declaratory relief is accordingly not appropriate.

2.0    In Any Event, the Failure to Exhaust Administrative Remedies Is a Bar
       Under California law, exhaustion of administrative remedies is not a matter of
judicial discretion but is a jurisdictional rule of procedure that forecloses judicial review
until it is satisfied. (Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235, 240,
citing, inter alia, Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 292.) This
absence of subject matter jurisdiction is not a defense that a party may waive.
(Quantification Settlement Agreement Cases (2011) 201 Cal.App.4th 758, 835; Troy
Gold Industries, Ltd. v. Occupational Safety & Health Appeals Bd. (1986)
187 Cal.App.3d 379, 385, fn. 3 [“It is to state the obvious that subject matter jurisdiction
cannot be conferred by consent . . . .”].)

       To begin with, we disregard the CalPERS executive office’s citation of federal
cases without any showing that federal law tracks California’s view of the jurisdictional
nature of the exhaustion of administrative remedies. It is not of any moment that federal
courts might take a more pragmatic view of the doctrine when that is not the California

                                              8
rule (nor would we find it persuasive if they did). We also do not find the doctrine of
primary jurisdiction, under which a court with concurrent jurisdiction over a matter will
abate its proceedings in favor of administrative proceedings, to provide guidance in the
present case because although overlapping, it is a discretionary doctrine for courts to
apply and thus unlike the jurisdictional exhaustion doctrine. (Farmers Ins. Exchange v.
Superior Court (1992) 2 Cal.4th 377, 390-392 (Farmers Ins.).)

       We also disregard the CalPERS executive office’s approach in its argument of
eliding the distinction between itself and its governing board in referencing “CalPERS”
as a single entity. The CalPERS board reviews the actions of its executive office; the
executive office consequently does not have the authority independently to bind the board
to any policy.

        The CalPERS executive office has a prescribed administrative route3 for
enforcing its interpretation of section 7522.02(a)(3) against transit workers hired in 2013
and 2014, which is through an appeal to the CalPERS board to adjudicate a precedential
administrative opinion either upholding or rejecting it, after a review by an independent
hearing officer from the Office of Administrative Hearings (§ 11502), at which time that
ruling can be applied in the remainder of the pending appeals. Until the CalPERS
executive office completes that process, the doors of the courthouse are closed to it
because there is no jurisdiction in the trial court to award declaratory relief regardless of
which party prematurely sought it. (Munro, supra, 178 Cal.App.2d at p. 72; Imperial

3 The CalPERS executive office does not provide any authority or compelling logic for it
to claim the discretion granted in section 20134 to the board to decide whether to hold an
administrative hearing, and on that basis disregard the procedure prescribed in the board
regulations. Indeed, the failure to afford administrative hearings in derogation of these
regulations would appear to warrant relief in traditional mandate for failure to exercise a
ministerial duty (but that is a matter for another day, as it is not a remedy that defendants
have sought in the present case).

                                              9
Mutual, supra, 59 Cal.App.2d at pp. 505-506.) Given that the fundamental purposes of
the exhaustion doctrine are respect for an agency’s autonomy and expertise in
adjudicating an issue, and judicial efficiency such that “overworked courts should decline
to intervene in an administrative dispute unless absolutely necessary” (Farmers Ins.,
supra, 2 Cal.4th at p. 391), neither is served if we were to allow the CalPERS executive
office to make an end run around its board.

       Thus, the CalPERS executive office has failed to show that exhaustion does not
apply in the present case. As a result, it had the burden of establishing an exception such
as futility (Parthemore v. Col (2013) 221 Cal.App.4th 1372, 1379), which is the gist of its
remaining argument (even if not framed as such).

       “Unless a litigant can demonstrate that the administrative agency has indicated its
predetermined decision in the litigant’s particular case, [futility] does not apply even if
the outcome in other similar cases is adverse to the litigant’s position.” (Imagistics
Internat., Inc. v. Department of General Services (2007) 150 Cal.App.4th 581, 590.) And
“[t]he mere fact that the staff of the State Commission had recommended that the
accessway condition to the permit be retained does not mean that the same result would
necessarily follow a public hearing by the full commission. Without some showing that
the State Commission mechanically follows the recommendations of its staff, we cannot
find that an appeal would have been an ‘idle pursuit.’ ” (La Costa Beach Homeowners
Assn. v. Wayne (1979) 89 Cal.App.3d 327, 331.) Although the CalPERS executive office
asserts in peremptory manner in its briefing that it “is not apparent” that the CalPERS
board “would adopt a different interpretation of section 7522.02(a)(3),” and “were that
the case, CalPERS would not have filed the complaint”; that “[b]y filing the complaint,
CalPERS reaffirmed that the interpretation of section 7522.02(a)(3) in the Circular Letter
is the position of the agency”; that “the agency [sic] has already interpreted the law”; and
that “[t]he complaint” of itself “is conclusive evidence of CalPERS’s determination”

                                              10
because if the CalPERS board “did not approve of the filing of the complaint, the
complaint could not have been filed” (italics added), these are not allegations in the
complaint and in any event fail to establish that the CalPERS board mechanically follows
the recommendations of its staff in adjudicating administrative appeals.4 As a result, the
futility exception does not apply.

                                      DISPOSITION
       The judgments in these matters are affirmed. Defendants shall recover costs of
appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)

                                                        BUTZ                  , J.

We concur:

      RAYE                  , P. J.

      ROBIE                 , J.

4 If the CalPERS executive office is indeed following the bidding of its board, as the
executive office seems to imply, it raises the question of why the board would seek to
avoid issuing a ruling on this matter.

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