As the public pension community in California is well aware, on July 30, 2020, the California Supreme Court issued its landmark decision on vested rights and the constitutionality of legislative changes to public retirement statutes in Alameda County Deputy Sheriff's Association, et al. v. Alameda County Employees' Retirement Association, et al. (State Of California) (2020) 9 Cal.5th 1032 (“Alameda”). See our eAlert from July 31, 2020.

Soon after issuing Alameda, the Court dismissed two other petitions for review and sent the two felony forfeiture cases back to the courts of appeal with directions. One of the remanded felony forfeiture cases was Hipsher v. Los Angeles County Employees Retirement Assn. (2018) 24 Cal. App. 5th 740 (“Hipsher”). As to Hipsher, the Court directed the Second Appellate District “to vacate its decision and to reconsider the cause in light of [Alameda].” In response, the Second Appellate District has now summarily affirmed its prior decision upholding the constitutionality of the statute enacted as part of the Public Employees’ Pension Reform Act of 2013 (PEPRA), which requires forfeiture of a convicted felon’s pension when the felony arose in performance of official duties or was related to the felon’s application for pension benefits.

In sum, the Hipsher case involved (i) a determination by the County of Los Angeles (County) that an illegal gambling operation Hipsher was convicted of running arose in the performance of his official duties (i.e., was job-related) under California Government Code section 7522.72; (ii) a determination by the Los Angeles County Employees Retirement Association (LACERA) that, as provided by section 7522.72, Hipsher’s retirement allowance would be reduced by removing service credit he earned from the first date he committed that crime forward (and his corresponding member contributions would be returned); and (iii) Hipsher’s constitutional challenge to the reduction of the retirement benefits he already had earned and had begun receiving as a retiree. 

In response to Hipsher’s challenge, the Court of Appeal for the Second District held that the felony forfeiture statute did not violate either the contract clause, or the ex post facto prohibition, of the federal or California Constitutions. The court did, however, conclude that Hipsher had a constitutional due process right to have the LACERA Board of Retirement, rather than the County, determine whether Hipsher committed the felony of which he was convicted on the job, such that it would be subject to the forfeiture statute.  Additional analysis of the Hipsher decision is available in our eAlert from June 26, 2018.

On December 15, 2020 – subsequent to the California Supreme Court’s transfer order – the Second Appellate District docket reflects that the Court of Appeal ruled as follows: “The judgment [in Hipsher] is modified to reflect that LACERA, not the County, shall afford the requisite due process. This process shall conform with LACERA's existing administrative procedures and, at a minimum, provide Hipsher (1) notice of LACERA's intent to initiate forfeiture proceedings, and the reasons therefor, and (2) an opportunity to present his objections before LACERA's impartial decision maker, regarding whether he falls within the scope of section 7522.72. The judgment is affirmed as modified.”

Initially, the December 15 docket entry is puzzling because the original Court of Appeal opinion in Hipsher concluded that LACERA was responsible for providing a due process hearing. Thus, the judgment should not have been modified. The Court of Appeal’s actual order modifying the opinion makes this clear: two clarifying edits to the prior opinion were made, and the order confirms that there was no change in the prior judgment. In any event, under the court’s judgment, it is the public retirement board, rather than the convicted felon and retirement system member’s employer, that has the responsibility to make sure that the member is afforded due process (i.e., notice and an opportunity to be heard by the retirement board or an administrative hearing officer) prior to implementing a forfeiture. However, the constitutional challenges to the statute itself based on vested rights under the federal and state Contract Clause were rejected; thus Hipsher is precluded from litigating this issue at the administrative hearing. 

It is also a little surprising that the Court of Appeal did not issue a new opinion incorporating the Supreme Court’s analysis in Alameda. After all, the Supreme Court’s express direction to the Court of Appeal was to “reconsider” the case “in light of” the Alameda decision. In addition, the Court of Appeal received supplemental briefing, and on December 10, 2020, heard oral argument, regarding the impact of the Alameda decision on the case. In that post-Alameda context, Hipsher had argued that the Court limited its constitutionality conclusion in Alameda to changes in benefits that relate to the internal financial operation of the pension system, for example, by eliminating “spiking” of retirement benefits through additional limitations on the “compensation earnable” definition in the County Employees Retirement Law of 1937 (“CERL”). The Court of Appeal clearly disagreed with this argument. Instead, the court retained its original conclusion that the felony forfeiture statute is also constitutional under existing California Supreme Court precedent, which Alameda also affirmed, because imposing a sanction of forfeiture in order to “assure the faithful and honest discharge of the duties of the [public] employee” does, in the view of the court, “bear a material relation to the theory and successful operation of a pension system.” That test remains a key aspect of the constitutionality analysis after Alameda. Further, the Second Appellate District already had determined that providing a “comparable new advantage” to Hipsher in this context would have undermined the constitutional purpose of the statutory change, which was another aspect of the Alameda Court’s analysis. Of course, Hipsher could still seek review of the judgment by the California Supreme Court. Further review is discretionary with the Court, however, and it seems unlikely the Court would grant such a request, given that it already has upheld the constitutionality of all aspects of PEPRA that have been presented to it to date and given its decision to retain the publication status of Marin County Employees’ Retirement Assn. (2016) 2 Cal.App.5th 674 (“Marin County"), on which both the court in Hipsher and the Supreme Court relied. The Supreme Court may have little appetite for yet another round on this topic. 

Moreover, as we explained in our eAlert on November 25, 2020, the First District Court of Appeal will also be reconsidering its decision on the felony forfeiture statute in Wilmot
v. Contra Costa County Employees’ Retirement Association (2018) 29 Cal. App. 5th 846 (“Wilmot”) in early 2021. Notably, there, the Supreme Court not only issued the “vacate and reconsider” order as it had in Hipsher, but it also provided the following direction to Division 2 of the First Appellate District: “In doing so, the court is directed to address and resolve petitioner's claim under the contract clause of the California Constitution.” Accordingly, it is fair to expect that the court in Wilmot will issue a new opinion that squarely addresses the constitutionality of the felony forfeiture statute. However, given its prior decision affirming the statute’s constitutionality and the Second Appellate District’s affirmation and re-issuance of its published decision in Hipsher (on which the court in Wilmot already had relied), we have little doubt that the Division 2 of the First Appellate District will also conclude that the PEPRA felony forfeiture statute is constitutional. Indeed, Division 2 also issued the Marin County decision. (Information on that decision is in our eAlert from August 26, 2016.)

In that event, two Courts of Appeal will have deemed the PEPRA felony forfeiture statute to be constitutional in light of Alameda, and under those circumstances, the California Supreme Court is not likely to grant review.