A group of retirees from Lawrence Livermore National Laboratory brought a lawsuit against the Regents of the University of California (“Regents”) after the University of California eliminated their University-sponsored health insurance due to a transfer of the operation of the laboratory to a private consortium.  The court of appeal reversed the trial court’s judgment in favor of the Regents and allowed the retirees to proceed with their lawsuit.  (Requa v. The Regents of the University of California (--- Cal.Rptr.3d ----, Cal.App. 1 Dist., December 31, 2012).

Note

For a discussion of the referenced Retired Employees Association of Orange County case, please see our Legal Alert entitled, "County May be Bound by Implied Contract for Retired Employees' Health Benefits", December 5, 2011.

Facts

Joe Requa, Wendell G. Moen, Jay Davis, and Donna Venture (“Retirees”) began working for Lawrence Livermore National Laboratory (“Livermore”) at different times in the 1960s and 1970s.  They retired at different times in the period between 1999 through 2006.  During their employment, Livermore was operated by the University of California (“University”), which is governed by the Regents.  After Retirees retired, they all received University-sponsored group health insurance benefits.  The management and operation of Livermore transferred to a private consortium in 2007.  On January 1, 2008, the consortium assumed responsibility for providing Retirees’ health insurance benefits.   

Retirees brought an action for mandamus against Regents.  Retirees asserted that “elimination of their University-sponsored group health insurance benefits constituted an unconstitutional impairment of either an express or implied contract the Regents had formed with Retirees.”  They asserted that the Regents were prohibited from terminating their University-sponsored health benefits by the doctrine of promissory estoppel.  The trial court granted the demurrer filed by the Regents, which resulted in a judgment being entered in favor of the Regents.

Decision

The court of appeal reversed the decision of the trial court in all respects except as to Retirees’ claim for impairment of express contract.  One of the reasons the trial court found in favor of Regents was its conclusion that there can be no implied contract for medical benefits for retirees.  However, since the trial court reached its decision in this case, the California Supreme Court held otherwise.  The Supreme Court held in Retired Employees Association of Orange County v. County of Orange, (2011) 52 Cal.4th 1171, “‘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.” 

The Retired Employees Court concluded “‘that a county may be bound by the terms of an implied contract so long as there is no legislative prohibition against such arrangements, such as a statute or ordinance.’”  There is a presumption “‘that a statutory scheme is not intended to create a private contractual or vested right and a person who asserts the creation of a contract with the state has the burden of overcoming that presumption.’”  Legislation “may be said to create a contractual right when the statutory language or circumstances accompanying its passage ‘clearly’ . . . evince a legislative intent to create private rights of a contractual nature enforceable against the [government body].”  The Retired Employees Court “held that vested contractual rights may be implied from legislation in certain circumstances; vesting is simply a matter of the parties’ intent.”  Therefore, “public employee benefits may become vested by implication in appropriate circumstances.”

Applying the decision in Retired Employees to the case before it, the court of appeal concluded the Retirees adequately pleaded a case for breach of an implied contract.  The Retirees alleged that the obligation of the University to provide them with lifetime medical benefits on the same terms as other University retirees may be implied from the decades- long history of the provision of health benefits by the University and the actions of the University. 

The Regents first authorized medical benefits for retirees of Livermore in 1961.  The authorization for the provision of benefits was given “in accordance with policies and procedures used by the Regents in the ordinary course of their business and in the proper exercise of their powers.”  The Retirees assert the Regents did not reserve the right to modify, eliminate, or terminate the health benefits “in a manner that was not consistent with the legal authority of California public agencies to modify vested retirement benefits, nor did the Regents reserve the right to transfer the responsibility for providing this benefit to another entity.”  The Retirees further alleged the Regents failed to reserve the right to exclude Livermore retirees from coverage provided through University-sponsored group health coverage or to treat the Retirees differently from other University retirees and employees.

The Retirees asserted that from the 1960s until 2007, when management and operation of Livermore was transferred, the Regents provided Retirees with medical benefits without interruption.  The Regents passed a resolution in 1961 that authorized the University’s president “in connection with the University’s ‘Employee Health and Life Insurance Program,’ ‘to approve for continued payroll deductions and health insurance subsidy those existing plans which are willing to amend their benefits to provide equal benefits to retired employees.’” The Retirees claim that for more than 50 years after the Regents issued this resolution, they provided University retirees with the same medical benefits as they provided University employees. 

The Retirees also alleged that Regents used various benefit booklets and handbooks to offer to provide Retirees with University-sponsored group health plan coverage when they retired.  The Retirees alleged they “accepted this offer through working at Livermore and continuing to provide services over time, and they claim they remained there because of the promise they would have University-sponsored health group health plan coverage in retirement.”  These handbooks and booklets “informed University employees that they could continue their University-sponsored group health insurance coverage after they retired, provided they met certain eligibility criteria.”  The Retirees alleged that during all relevant times, they met the criteria set out by the University. 

The court of appeal rejected the Regents’ argument that the Retirees’ claims fail because they presented no document that clearly evinces the Regents’ intent to provide lifetime health benefits to the Retirees.  The court concluded that the Retirees did not need to present such documents at this stage of the proceedings.  The Retirees were only required to allege facts sufficient to support their causes of action. 

The Retirees alleged that the express authorization by the Regents to provide retiree health benefits, along with the later statements by the Regents and their representatives and the uninterrupted provision of benefits through 2007, created an implied contract to provide the Retirees with University-sponsored health benefits throughout their retirement.  The court of appeal concluded that the Retirees alleged sufficient facts to overcome the Regents’ demurrer in all respects except for their claim of impairment of express contract.  The Retirees will be able to proceed on their remaining claims against the Regents.