Retired County Employees Can Amend Their Complaint In An Attempt To Prove Existence Of A Contract for Health Benefits

In 2008, the Sonoma County Board of Supervisors (“County”) acted to cap the county’s contributions for health care benefits for retired employees at $500 per month.  The Sonoma County Association of Retired Employees (“Association”) filed a lawsuit against the County in federal district court for breach of contract claiming that for decades, the County had implicitly promised its employees health benefits after retirement.  The court ruled that the Association failed to show an express agreement by the County to provide health care benefits to retirees in perpetuity and dismissed the Association’s case without leave to amend its complaint.  The Association appealed. (Sonoma County Ass'n of Retired Employees v. Sonoma County, --- F.3d ----, C.A.9 (Cal.), February 25, 2013).

Note

For a discussion of the referenced California Supreme Court case, please see our Legal Alert entitled, “County May be Bound by Implied Contract for Retired Employees' Health Benefits, December 5, 2011”.

Decision

While this appeal was pending, the California Supreme Court issued an opinion in a similar case involving retired employees from Orange County.  (Retired Employees Association of Orange County, Inc. v. County of Orange (--- P.3d ----, Cal., November 21, 2011).  Quoting that opinion, the court noted that the California Supreme Court ruled that contractual rights can be inferred in certain circumstances resulting from legislative acts and therefore, a vested right to health benefits for retired employees can be implied under certain circumstances “from a county ordinance or resolution.”

Here, the court said, the Association was able to plausibly allege that the County entered into a contract, that the contract provided health care benefits for retirees and included an implied term that the benefits were vested for perpetuity.  However, to survive a motion to dismiss, the complaint must also plausibly point to a resolution or ordinance that created the contract implying these benefits.  The Association failed that test because it did not cite resolutions or ordinances that that would “clearly evince” an intent to grant vested benefits.  Accordingly, the district court did not err in finding that the Association’s complaint failed to state a cause of action on the issue.

Nevertheless, the court added, the district court did err when it denied the Association leave to amend.  Courts may decline to grant leave to amend only if there is strong evidence of “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, or futility of amendment.”  The court determined there was no evidence of any of those things and the Association should be given a chance to amend its complaint to state a claim that will survive a motion to dismiss.

The district court’s order granting dismissal was vacated and remanded for further proceedings consistent with the recent California Supreme Court ruling.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Bruce A. Scheidt, Laura Izon Powell, David W. Tyra or Kristianne T. Seargeant | 916.321.4500

Topics:  Breach of Contract, Employee Benefits, Retirement

Published In: Civil Procedure Updates, General Business Updates, Health Updates, Insurance Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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