John Jensen, Esq., State Bar No. 176813 1 ROBERTI JENSEN LLP 2 3600 Wilshire Blvd., Suite 714 Los Angeles CA 90010-2602 3 Tel. (213) 383-4380 Fax: (213) 383-4150 4 Attorneys for Respondent Alexander Family Trust (Real Party In Interest) 5
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7 BOARD OF ADMINISTRATION CALIFORNIA PUBLIC 8 EMPLOYEES' RETIREMENT SYSTEM 9
10 ) Case No 6594 In re the Pension Benefits of: ) OAH No. N2005040366 11 ) the late CLARENCE ALEXANDER ) REPLY BRIEF TO CALPERS’ 12 ) CLOSING BRIEF the late FRANCES ALEXANDER, ) 13 ) ALJ: Jonathan Lew Alexander Family Trust (RPII), et al ) Location: Sacramento CA 14 ) Respondents, ) 15 Respondents submits this REPLY BRIEF TO CALPERS CLOSING BRIEF. 16
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- 1 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF TABLE OF AUTHORITIES 1
2 Cases 3 . Bettelheim v. Hagstrom Food Stores, Inc., 249 P.2d 301...... 57 4 . Sibert v. Shaver (App. 1952) 111 Cal.App.2d 833, 245 P.2d 514...... 62 5 Abbott v. City of Los Angeles (1958) 50 Cal.2d 438, 448, 326 P.2d 484;...... 113 6 Abbott v. City of Los Angeles, supra, 50 Cal.2d 438, 326 P.2d 484,...... 115 7 Allen v. Board of Admin. of Public Employees' Retirement...... 117 8 American Federation of Labor v. Unemployment Ins. Appeals Bd. (1996) 13 Cal.4th 1017...... 85 9 Ann.Gov.Code, §§ 9359.1...... 111 10 Austin v. Board of Retirement...... 84, 86 11 Austin v. Board of Retirement (1989) 209 Cal.App.3d 1528, 1531- 1534...... 83 12 Austin v. Board of Retirement of Los Angeles County Employees Retirement Association. .80, 82, 13 93, 99 14 Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 457, 20 Cal.Rptr. 321, 369 P.2d 15 937),...... 117 16 Baker vs. Joseph, 16 Cal., p. 173...... 64 17 Bank of America Nat. Trust & Savings Ass'n v. Moore & Harrah, 128 P.2d 623...... 56 18 Bettelheim v. Hagstrom Food Stores, Inc., 249 P.2d 301...... 52 19 Betts...... 49 20 Bill Analysis of AB 67 of April 2003...... 101 21 Bill Analysis of SB 2123(1988)...... 95, 100 22 Cal.C.C.P. § 312...... 63 23 Cal.Civ.Code § 3287...... 89 24 Cal.Const., art. IV, s 4...... 114 25 Cal.Const., supra, art. IV, s 4.)...... 114
- 2 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 California State Auto. Ass'n, Inter-Ins. Bureau v. Cohen (App. 1 Dist. 1975) 118 Cal.Rptr. 890,
2 44 Cal.App.3d 387...... 61
3 Chapin v. City Commission (1957) 149 Cal.App.2d 40, 44-45, 307 P.2d 657.)...... 113
4 City of Sacramento v. Public Employees Retirement System (1991) 229 Cal.App.3d 1470, 1488,
5 280 Cal.Rptr. 847...... 92
6 Civ. Code, § 3287...... 83, 87
7 Civil Code section 3287...... 82, 83, 84, 85
8 Commercial Discount Co. v. Bank of America Nat. Trust & Savings Ass'n (App. 4 Dist. 1943)
9 61 Cal.App.2d 721, 143 P.2d 484...... 90
10 Const., art. VI, § 1...... 89
11 Cooke vs. Spears, 2 Cal., p. 409...... 64
12 Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 177...... 85
13 Currie v. Worker’s Compensation Appeals Board...... 80, 82, 93, 99
14 Currie v. Workers' Comp. Appeals Bd...... 82
15 Currie v. Workers' Comp. Appeals Bd.24 Cal.4th 1109, 1119 104 Cal.Rptr.2d 392 Cal. 2001
16 ...... 86
17 Dyer v. Workers' Comp. Appeals Bd...... 84
18 Dyer v. Workers' Comp. Appeals Bd. (1994) 22 Cal.App.4th 1376, 1385...... 84
19 Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1389...... 84
20 Edgington v. Security-First Nat. Bank of Los Angeles (App. 2 Dist. 1947) 78 Cal.App.2d 849,
21 179 P.2d 640...... 59
22 El Rio Oils, Canada, Limited v. Pacific Coast Asphalt Co. (App. 1949) 95 Cal.App.2d 186, 213
23 P.2d 1,...... 58
24 Estate of Madison (1945) 26 Cal.2d 453, 456...... 86
25 Federal Land Value Ins. Co. v. Taylor, 1932, 56 F.2d 351...... 45
Frank v. Board of Administration (1976) 56 Cal.App.3d 236, 245, 128 Cal.Rptr. 378;...... 113
- 3 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 GC 21211.6...... 100
2 GC 21499...... 80, 93, 103
3 GC 9359.10...... 48
4 GC 9360.10...... 48
5 GC§ 20164...... 63
6 GC20160...... 91
7 GC21499...... 101
8 Goldfarb...... 49
9 Goldfarb v. Civil Service Com...... 84
10 Gov. Code, § 31720...... 86
11 Gov. Code, §§ 31662.2...... 87
12 Gov.Code § 68203...... 89
13 Government Code §20160(e)...... 91
14 Government Code section 31725.7...... 87
15 Govt Code 21499...... 100
16 Grattan vs. Wiggins, 23 Cal., p. 16...... 64
17 Hearst vs. Pujol, Cal.Sup.Ct., July Term, 1872...... 64
18 Judson Steel Corp. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 658, 668...... 84
19 Kane vs. Cook, 8 Cal., p. 449...... 64
20 Kendall-Jackson Winery, Ltd. v. Superior Court, 90 Cal.Rptr.2d 743...... 63
21 Labor Code section 132a...... 84
22 Liberty Mut. Fire Ins. Co. v. McKenzie, 105 Cal.Rptr.2d 910...... 63
23 Lick vs. Diaz, 30 Cal., p. 75...... 64
24 Lyon v. Fournoy (1969) 271 Cal.App.2d 774, 76 Cal.Rptr. 869...... 114
25 Mass v. Board of Ed. of San Francisco Unified School Dist. (1964) 39 Cal.Rptr. 739, 61 Cal.2d
612, 394 P.2d 579...... 90
- 4 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Mass v. Board of Education...... 84
2 Mass v. Board of Education (1964) 61 Cal.2d 612...... 83, 87
3 Mass v. Board of Education,...... 86
4 Medina v. Board of Retirement, Los Angeles County Employees Retirement Assn. (App. 2 Dist.
5 2003) 5 Cal.Rptr.3d 634, 112 Cal.App.4th 864,...... 45, 58
6 Mercantile Acceptance Corp. v. Liles Bros. Motor Co., 334 P.2d 983
7 Cal.App.3.Dist.,1959...... 56
8 Miles vs. Thorne, 38 Cal., p. 335...... 64
9 Miller v. State of California (1977) 18 Cal.3d 808, 816, 135 Cal.Rptr. 386, 557 P.2d 970...... 111
10 National Dollar Stores v. Wagnon (App. 4 Dist. 1950) 97 Cal.App.2d 915, 219 P.2d 49...... 58
11 Olson v. Cory...... passim
12 Olson v. Cory (1983) 197 Cal.Rptr. 843, 35 Cal.3d 390, 673 P.2d 720...... 90
13 Ord vs. De la Guerra, 18 Cal., p. 67...... 64
14 Raley v. California Tahoe Regional Planning Agency, 137 Cal.Rptr. 699 Cal.App.3.Dist.,197755
15 San Diego County Deputy Sheriffs Assn. v. San Diego County Civil Service Com. (1998) 68
16 Cal.App.4th 1084, 1086...... 83
17 San Diego County Deputy Sheriffs Assn. v. San Diego County Sheriffs Dept. (App. 4 Dist.
18 1998) 80 Cal.Rptr.2d 712, 68 Cal.App.4th 1084...... 90
19 San Francisco Credit Clearing House v. Wells (1925) 196 Cal. 701, 239 P. 319...... 62
20 Sanders v. City of Los Angeles (1970) 3 Cal.3d 252, 262...... 83
21 Sanders v. City of Los Angeles (1970) 90 Cal.Rptr. 169, 3 Cal.3d 252, 475 P.2d 201...... 90
22 Santin v. Cranston (1967) 250 Cal.App.2d 438, 441, 59 Cal.Rptr. 1.)...... 116
23 Schnyder v. State Bd. of Equalization (App. 3 Dist. 2002) 124 Cal.Rptr.2d 571, 101 Cal.App.4th
24 538...... 58
25 Schroeder vs. Jahns, 27 Cal., p. 274;...... 64
- 5 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Smetherham v. Laundry Workers' Union, Local No. 75 (App. 3 Dist. 1941) 44 Cal.App.2d 131,
2 111 P.2d 948...... 61
3 Smetherham v. Laundry Workers' Union, Local No. 75 (App. 3 Dist. 1941) 44 Cal.App.2d 131,
4 111 P.2d 948...... 61
5 Smith vs. Richmond, 19 Cal., p. 476...... 64
6 Stork v. State of California (1976) 62 Cal.App.3d 465, 471, 133 Cal.Rptr. 207.)...... 113
7 Tripp v. Swoap (1976) 17 Cal.3d 671...... 83, 86
8 Tripp v. Swoap (1976) 17 Cal.3d 671, 675, 678-685...... 83
9 Tripp v. Swoap, supra , 17 Cal.3d 671, 685, fn. 14...... 88
10 Tripp v. Swoap, supra , 17 Cal.3d at pp. 680-681,...... 87
11 U.S. v. Bank of America Nat. Trust & Sav. Ass'n, N.D.Cal.1942, 47 F.Supp. 279, new trial
12 granted 51 F.Supp. 751...... 62
13 Walnut Creek Manor v. Fair Employment & Housing Com. (1991) 54 Cal.3d 245, 262...... 85
14 Weadon v. Shahen (App. 4 Dist. 1942) 50 Cal.App.2d 254, 123 P.2d 88...... 61
15 Weber v. Board of Retirement (1998) 62 Cal.App.4th 1440, 1450...... 85
16 West's Ann.Gov.Code, §§ 9359.1...... 112
17 Young v. Bank of Cal. (App. 1 Dist. 1948) 88 Cal.App.2d 184, 198 P.2d 543...... 58
18 Yu v. Signet Bank/Virginia, 126 Cal.Rptr.2d 516 Cal.App.1.Dist.,2002...... 62
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- 6 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF TABLE OF CONTENTS 1 Table of Authorities ...... 2 2
3 Table of Contents ...... 7
4 INTRODUCTION ...... 8
5 Reply Arguments About Issues Presented a Hearing . . . .15
6 Harvey Robinson’s testimony ...... 19
7 Anne Woodward’s Testimony ...... 22
8 Alan Milligan’s Testimony ...... 24 9 Tom Collins’ testimony ...... 29 10 Dispute Over Betts Calculation Methodology . . . . .29 11 Betts Retirement Allowance Calculations ...... 32 12 REPLY to CalPERS’ General Arguments About Its Power and Interpretations . 34 13 REPLY to CalPERS Assertion of Equitable Defenses . . . . 42 14 REPLY to CalPERS’ Fiduciary Duties ...... 66 15
16 REPLY to CalPERS’ Arguments about Interest . . . . . 80
17 REPLY to CalPERS’ Arguments About Penalty Interest . . . . .93
18 REPLY to CalPERS’ Arguments About the Betts Case, Supreme Court Precedent. .103
19 REPLY to CalPERS Arguments About Cost of Living Adjustments (COLAS) . .118
20 REPLY TO CalPERS’ Arguments Denying Option 2 Full Benefit . . . .132 21 REPLY to CalPERS Arguments Denying Attorneys Fees . . . . .141 22
23 CONCLUSION ...... 145 24
25 LIST OF NEW EXHIBITS incorporated and attached separately . . .APPENDIX A
- 7 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 1. Introduction 2
3 CalPERS ignores legislative history, defies the plain meaning of the statute, and 4 misconstrues the precedent case law. As is obvious in the underlying CalPERS-Betts 5 documents Respondent offered into evidence, the California Supreme Court in Betts ruled 6 for the Respondent in an almost identical “double increment of increase” pension benefit. 7 As precedent, Betts controls this case. Alexander is more like the actual Supreme Court’s 8 ruling in Betts than the facts in Betts were. 9 CalPERS fails to present any authority or evidence to support its theories. Specifically, 10 CalPERS fails to offer any legislative history or other evidence to support any of CalPERS’ 11 various calculation methodologies. CalPERS does not offer any Bill Analysis, Legislative 12 History, or other documents to prop up any of their many constructions or inventions. 13 Simply CalPERS pleads that it has the authority to change interpretations. Because 14 CalPERS has the authority to and has changed the interpretation a number of times, CalPERS 15 attorneys take the logical leap that therefore whatever interpretation CalPERS undertakes is 16 right and indisputable. This is simply wrong. CalPERS does not make the law. CalPERS 17 implicitly and dangerously argues that the statutory interpretation and legislative history 18 do not matter because CalPERS is the ultimate arbiter of all things related to pensions. 19 CalPERS is off-base, overreaching, and usurping the Legislative process. 20 In presenting its theories of Alexanders’ correct pension calculation, CalPERS is incoherent 21 and disjointed. In one sentence, CalPERS argues that cost-of-living adjustments to the “base” 22 pension is the source of the dispute. In the following sentence, CalPERS argues that Woodward 23 and Milligan apply COLAs on a prospective basis. Then later, Milligan and Woodward offer 24 2 different interpretations, with different results, both of which are irreconcilable. 25
- 8 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Milligan’s theory does not include the incumbent salary in the calculation of the base allowance.
2 Woodward’s theory does not apply more than one cost of living adjustment.
3 It is simply not reasonable or coherent to argue 3 different theories with 3 different results as
4 being one and the same interpretation. Each of CalPERS’ theories is different, contradictory,
5 and yields a different result. Besides being incomprehensible and mathematically impossible,
6 CalPERS arguments lack credibility. CalPERS invented them in a result-oriented effort to try
7 not to pay the Alexanders the money due.
8 CalPERS has changed interpretations so many times it is difficult to keep track: (1) From
9 1969 to 1979, CalPERS applied the correct formula to Alexander. (2) In 1980, CalPERS
10 incorrectly used Alexander’s 1979 pension amount as a base pension and applied COLAs for
11 each subsequent year. (3) In 1986, CalPERS applied the correct LSO formula for Jim Driscoll
12 (but did not include or inform Alexander). (4) In 1991 CalPERS applied the correct formula for
13 Darryl White (but did not include or inform Alexander). (5) In 1998, CalPERS argued in its
14 Statement of Issues before the Office of Administrative Hearings that a 1985 legislative change
15 in the referent COLA indices changed the pension calculation for Driscoll and White (but did
16 not include Alexander). (6) Unwilling to fight the litigious CalPERS, Driscoll and White settled
17 on yet another interpretation that froze their pension for increases in the salary of the incumbent
18 for 3 years, but allowed yearly cost of living increases. (7) In 1998, CalPERS cut Frances
19 Alexander’s pension by 20% under a mistaken interpretation of Option 2. (8) In 2005, CalPERS
20 admitted it did not know why Alexander’s pension had been ‘frozen’ incorrectly in 1979, but a
21 subsequent review had determined that the changed interpretation was correct. (9) At the
22 hearing, CalPERS offered “EXHIBIT A” which utilized the same formula as applied to
23 Alexander from 1970 to 1979. (10) At the hearing, Ms Woodward testified that the proper
24 calculation methodology was increasing the base allowance rooted in salary of the incumbent by
25 one year’s COLA. (11) Then a few minutes later (after Woodward’s theory would not withstand
cross examination), Mr. Milligan testified that none of the other theories was correct but rather,
- 9 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 the correct interpretation was a logic formula that compared the current pension with the gross
2 amount of the salary of the incumbent and used the higher as the base allowance (conveniently
3 forgetting that the parties had agreed that the salary of the incumbent was the first factor in
4 calculating the base allowance). Although there were probably more than 11 different
5 interpretation of GC 9359.10, we counted at least 11.
6 On the contrary, Respondents have always offered only one consistent theory based in the
7 plain meaning of GC9359.10 and the ample legislative history. The LSO pension is based in
8 both increases in the salary of the incumbent Secretary of the Senate and all of the COLAS after
9 retirement (in 1969) applied in a serial manner.
10 Serial COLAS are appropriate. The statutes and practices are clear. For Alexander, the
11 ‘increases [plural] for cost of living adjustments after retirement’ shall be in addition to the
12 increases in his base allowance for increases in the salary of the incumbent Secretary of the
13 Senate. The COLAS should increase the base allowance in a serial year by year manner ( as
14 described in Exhibit 120 and “EXHIBIT A”) using a base year of retirement in 1969.
15 Continuing its hubris and ill will, CalPERS basically argues that even if CalPERS
16 intentionally withheld the pension and failed to inform the Alexanders of the monies due,
17 CalPERS should still not have to pay. CalPERS bases its “equitable defenses” on Alexander’s
18 apparent visit to CalPERS on one of three days in March of 1976. Supposedly Alexander
19 entered CalPERS offices and inquired into the possibility of waiving a small portion of his
20 pension. In a letter that was also sent to the executive director of CalPERS, CalPERS wrote
21 Alexander to explicitly inform him that Alexander could not legally waive, and that waiver was
22 impossible. Alexander never raised the issue again.
23 4 years later CalPERS secretly cut Alexander’s pension without notice, a hearing, or
24 providing any information. Thereafter for 25 years CalPERS intentionally hid the underpayment
25 from the Alexanders and actively misinformed them of the amount payable. CalPERS knew and
admitted that the Alexanders were unaware of the underpayment and the miscalculation.
- 10 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Under these facts and circumstances, CalPERS alleges that it is the wronged party and
2 asserts “equitable defenses”. It is not difficult to argue that CalPERS is not entitled to assert
3 laches, equitable estoppel, waiver, or any other equitable defense. In general, CalPERS ignores (1)that in 1969 the Alexanders legitimately vested in the 4 dual benefits of the GC 9359.10 pension; (2) that Clarence and Frances Alexander took a 80.4% 5
6 reduction to their pension to continue the benefit for Frances’ life with a 100% Joint and
7 Survivor Benefit that provided for payment of all obligations including the “Double COLA”
8 benefit; (3) that CalPERS owed the Alexanders Fiduciary duties, including duties to correctly
9 and unambiguously inform them of their pension rights and to pay the benefit correctly; (4) that
10 CalPERS knew that Clarence and Frances Alexander were unaware of the underpayment
11 starting in 1979; (5) That CalPERS knowingly and intentionally breached their fiduciary duties 12 to the Alexanders since at least 1991 (see EXHIBIT 43); (6) that when Clarence died in Feb 13 1998, CalPERS did not inform or pay Frances Alexander the existing underpayment obligation; 14 (7) That in Feb. 1998, the accrued underpayment obligation survived Clarence’s death and was 15 explicitly payable to Frances under GC 21494-21499 and other code sections; (8) that there is 16 no applicable statute of limitations when CalPERS owes a member money; (9) that Frances 17 Alexander timely made a claim presentation to CalPERS after Clarence’s death; (10) that 18
19 Frances Alexander timely made a claim presentation to CalPERS soon after discovering the
20 underpayment in October 2003; (11) that the Alexanders never waived any portion of the
21 pension; (12) that the Alexander never acted in any way inconsistent with their need for the
22 pension and the monthly payments.
23 In effect, CalPERS argues the Alexanders are barred by laches (which does not apply to 24 action in law) or equitable estoppel from pursuing the 25 years of underpayment (about $6.5 25 million under CalPERS’ own calculations) because of CalPERS’ errors and breaches of duty.
- 11 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF However, CalPERS inappropriately and intentionally withheld Alexanders’ proper 1 pension for the period of June 1979 to the Dec 2005. CalPERS intentionally underpaid the 2
3 Respondents by $7,482,668. As of March 2006, that amount has increased to $7,610,309. The
4 Alexander are the only party with a claim in equity.
5 Frances’ Option 2 has also been argued. The law is clear: After the death of Clarence
6 Alexander in Feb 1998, Frances “shall receive the same benefits as the surviving spouse
7 would have received”, i.e. the dual benefits of GC 9359.10.
8 Interest is also at issue. The California Supreme Court in Currie v. Worker’s 9 Compensation Appeals Board (2001) 24 Cal 4th 1109 and the California Appellate Court in 10 Austin v. Board of Retirement of Los Angeles County Employees Retirement Association (1998) 11 209 Cal. App. 3d 1528, hold that administrative awards of retroactive pension benefits must 12 include interest under Civil Code Section 3287. These cases express controlling authority in this 13 matter. Further Government Code section 20160, vests CalPERS with authority to pay interest 14 on retroactive retirement benefits. 15
16 In Alexander, CalPERS’ “EXHIBIT A” and Respondent Exhibit 120 generally agree (1)
17 an interest rate of seven percent (7%) per California Constitution, Article 15, Section 1 Usury is
18 due on monies payable; and (2) that CalPERS has incurred an interest liability.
19 CalPERS’ “EXHIBIT A” and Respondent Exhibit 120 generally agree that about
20 $6,425,000 is due to the Alexanders if interest is only charged at 7%. 21 Specifically, CalPERS’ Scenario G2 of their “EXHIBIT A” applies interest at 7% on the 22 underpayment starting June 1979. CalPERS’ Scenario G2 of their “EXHIBIT A” yields a total 23 of principal and interest payable to Alexander of $6,425,066 as of December 2005. 24 Respondent presents the same data slightly differently under 2 Schedules that cover 25 different time periods. Specifically in Exhibit 120, Respondent’s Schedule 3.2 ($3,608,936)
- 12 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF covers the period of June 1979 to February 1998. Respondent’s Schedule 4.2 ($2,815, 917) 1 covers the period of March 1998 to the December 2005. Both of these Schedules apply interest at 2
3 7% on the underpayment. Adding Respondent’s Schedule 3.2 ($3,608,936) and Schedule 4.2
4 ($2,815, 917) to cover the whole period of June 1979 to Dec 2005, the result is $6,424,907 in
5 principal and interest payable to Alexander.
6 Comparing Exhibit 120 with “EXHIBIT A”, Respondent and CalPERS’ estimates
7 differ by $159 or about 0.00002%.
8 Respondent also seek Penalty interest. On EXHIBIT 120, Schedule 3.4 indicates that 9 $4,666,697 is due Respondent for monies withheld for the period of June 1979 to Feb 1998, with 10 interest after March 1998 applied at the greater of seven percent or the “net earnings rate” of 11 CalPERS. Applying GC 21499 only to the lump sum payable to the Alexanders on Feb 1998 12 provides approximately one million more in interest.1 13 Respondent believe that the Alexanders are entitled to: 14 (i) A pension based in the salary of the incumbent Secretary of the Senate 15
16 increased by all the COLAs since 1969 in a serial manner;
17 (ii) Payment of the underpayment;
18 (iii) interest at 7% on the underpayment from June 1979 to Feb 1998 ;
19 (iv) interest at the greater of PERS net earnings rate or 7% per GC 21499 on the
20 accrued but unpaid lump sum outstanding and not paid to the Alexanders at 21 Feb 1998 ( $4,666,697 per Schedule 3.4); 22 (v) interest at seven percent for the underpayment of Frances Alexander’s 23 allowance from March 1998 to her death ($2,815, 971). 24
25 1 Specifically, Schedule 3.2 applies only seven percent to the lump sum outstanding at Feb 1998 and yields $3,608,936. Applying the greater of seven percent or the net earnings rate to the lump sum outstanding on Feb 1998, provides $4,666,697 pursuant to Schedule 3.4 of EXHIBIT 120. The accretion due to GC 21499 is $1,057,761.
- 13 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF The total underpayment plus interest for the period of June 1979 to the Dec 2005 is 1 $7,482,668 through Dec 2005. 2
3 As of March 2006, that amount has increased to $7,610,309.
4 Respondent also seeks interest on the unpaid amounts to the later of (i) the current Month
5 (March 2006), or (ii) when payment is actually made.
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- 14 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF REPLY ARGUMENTS ABOUT ISSUES 1 PRESENTED AT HEARING
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3 Respondent has proven by overwhelming and often undisputed evidence that it is entitled to
4 damages exceeding $6,425,000.
5 In the hearing from Feb 27 to March 1, 2006, Respondent presented Harvey Robinson as an
6 expert witness, queried Anne Woodward, cross examined Alan Milligan, and received damage
7 calculations from Mr. Tom Collins CPA. GENERAL ARGUMENT AGAINST CALPERS’ INTERPRETATION OF GC 9359.10 8 AND CALCULATION METHODOLOGY 9 CalPERS has fought Alexander with gusto and hard work. 10 Yet, CalPERS fails to offer any evidence to support their various calculation 11 methodologies. CalPERS does not offer any Bill Analysis, Legislative History, or other 12 documents to support any of their many interpretations. 13 In reading the case law, CalPERS twists Betts beyond recognition. 14 When ultimately pressed for authority to support its litigation, CalPERS simply asserts 15 that CalPERS has the right to any interpretation that it desires, as if CalPERS was entitled to 16 victory as an unalienable right or as a matter of law. In asserting its will and not insubstantial 17 power and resources, CalPERS brazenly ignores the obvious case law and flagrantly defies the 18 well documented legislative intent. 19 Despite CalPERS’ bluster and audacity, Respondent’s calculation methodology is the 20 only interpretation with any support in the Bill Analysis or Legislative History. The Advance 21 Ruling is clearly and unambiguously supported. Betts is clearly and directly on point as binding 22 precedential case law. In actuality, the facts in Alexander are closer to the court’s holding in 23 Betts than the facts in Betts were. Alexander is more Betts-like than Betts was. In any event, 24 Alexander is clearly and comfortably within the Betts precedent. 25
- 15 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 In meeting the burden of proof, the significant difference between CalPERS and
2 Respondent is that Respondent has actually provided evidence to support its calculation
3 methodology. CalPERS has provided no evidence. The court should infer that if CalPERS had
4 any evidence CalPERS would supply it. It has not. Since CalPERS does not have any evidence
5 to support its interpretation, CalPERS interpretation should be discarded and thrust aside as
6 without merit.
7 If CalPERS calculation methodology is to be given any consideration at all, one must
8 wonder why in 1981 and at other times the legislature worried that the LSO pension would
9 exceed the salary of the incumbent. Not only did the Legislature worry, but the Legislature
10 amended GC 9359.10 in 1981-2 for future LSOs to limit the base allowance to the highest salary
11 in office (with serial COLAS). The Legislature did not amend the COLA language of GC
12 9359.10; the 1981 amendment only limited the base allowance. The Russell Bill in 1981 and the
13 accompanying Legislative intent and Bill Analysis are clearly illustrated in EXHIBITS 13-17.
14 This evidence clearly points to a calculation methodology that provides for a LSO pension that
15 increases for both increases in the salary of the incumbent and also additionally increases for all
16 of the COLAS since retirement.
17 In CalPERS latest calculation methodology, the LSO pension would never exceed the
18 salary of the incumbent because the LSO pension is first reduced by about half (.666 x .804)
19 before one COLA is applied. CalPERS’ interpretation is clearly contradicted and rebuffed by the
20 documents supporting the 1981 Russell Bill, including the Sarasohn analysis in Exhibits 103-
21 104. In particular Exhibit 104 shows the LSO pension increased for both increases and surpassed
22 the salary of the incumbent.
23 In addition, CalPERS is not consistent in its arguments or application. CalPERS applied
24 the “correct” calculation methodology to Driscoll and White until 1998 while denying
25 Alexander in 1979. In seeking to change it (without notice to Alexander) in 1998, CalPERS
argued that a 1985 change in the law effected the application of the COLAs. EXHIBITS 18-19.
- 16 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 CalPERS’ argument is dubious in any case, but 1985 COLA change (if there was one) would not
2 affect Alexander.
3 CalPERS also misconstrues the Respondents’ argument when it argues about “triple” dip
4 and other assorted linguistic twists without substance. They are without merit and meaningless.
5 In seeking to give meaning to GC9359.10, CalPERS must read all of the language of the
6 statute. They fail to do so. CalPERS picks and chooses language to support its illegal
7 administrative “freeze” that basically gutted GC9359.10 without explanation.
8 If one reads the language as written, confers with the legislative history, and reviews the
9 administrative interpretations for the first 10 years for Alexander ( and until 1998 for the others)
10 there simply is no other interpretation than Respondents and your honor’s for the calculation
11 methodology.
12 Absurd Means Inconsistent with Obvious Truth, Reason, or Sound Judgment 13
14 Although an underpayment amount of $3.2 million dollars in principal is a lot of money,
15 it is not so great considering that CalPERS withheld the payment of a generous pension for
16 twenty six (26) years.
17 As far as the end amount being large, it is immensely important to remember that at least
18 half of the sum is CalPERS’ direct responsibility and fault: the interest is all a result of
19 CalPERS’ inappropriate withholding.
20 Although even a $120,000 a year underpayment may be considered generous, it is not
21 absurd. Although a $400,000 pension in gross amount is large, it is not absurd compared with
22 the pension in the private sector of millions of dollars year. Clarence Alexander’s position for 20
23 years or so was more akin to that of a chief executive in a private, high stress position than it
24 was to the position of a legislator. As noted throughout, the LSO position actually earned more
25 in salary a year than most, if not all, other legislators or politicians. Even today, one could
- 17 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 consider the salary of $167,000 absurd, but only without reference to the work that the Secretary
2 of the Senate has to perform.
3 Of course, 25 years time, compounding, interest rates, high inflation, and the great genes
4 of both Alexanders played a part in increasing the amount payable. He lived to be an
5 octogenarian and she a nonagenarian (to age 92). In 1969, they were expected (by mortality
6 tables) to live to about 67. Even so, the amount due, although large, is not absurd under the
7 circumstances and facts of the case. It is the result of a generous pension and a long life.
8 It is clear that no one expected one of the Alexanders to live to be 92 when Clarence
9 retired in 1969. However, the risk of old age is properly placed on CalPERS, rather than the
10 retiree. CalPERS hires the actuaries and other professionals to estimate life span, prepare
11 actuarial estimates, spread the risk. It is known that several other LSOs or members in LRL,
12 including for example Frances Beard Senior, died likely before their estimated life, so that the
13 overall actuarial gamble or life expectancies may be correct.
14 It is likely that if the Alexanders had only lived to their expected life times of 67 years,
15 the pension formula in GC 9359.10 would have properly provided them with a generous and
16 substantial pension.
17 In fact, the absurd interpretation of GC 9359.10 is closer to CalPERS’ interpretation
18 (which ignores all facts and evidence to the contrary) in order to reach a result that it desires.
19 Absurdity means something “inconsistent with obvious truth, reason, or sound judgment”.
20 Here the truth is obvious and well documented in the legislative history. The truth is the
21 Respondent’s interpretation. The reason for the large pension is clear, if political. Alexander got
22 a generous pension because he was a favored, hard working employee with long service who
23 provided good service and was well liked by the Legislators who made the law. The Legislators
24 themselves had benefited from double COLA pensions. The Constitutional Officers had an even
25 more generous pension formula than the LSOs, with a COLA based in 1954 without respect to
the year the Constitutional Officer retired. In all likelihood the legislators who wrote GC
- 18 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 9359.10 borrowed the concept and framework from the existing Constitutional Officers
2 pension, incorporated an existing ( less generous) referent COLA indices, and simply put in
3 place another ‘double COLA’ pension provision similar to the other LRL pensions. The sound
4 judgment at the time of the legislation is not in issue. CalPERS can not change the clear intent
5 and meaning of GC9359.10 simply because in retrospect CalPERS disagrees with the wisdom of
6 it. If CalPERS thinks that it can usurp the legislature at its will, it is mistaken.
7 CalPERS ignores that it had plenty of honest, legal , and appropriate means and
8 opportunities to “correct” the LSO pension if it thought that it was faulty. The most obvious
9 example is the 1985-6 Constitutional Amendment that limited the base allowances of
10 Constitutional Officers’ pensions to the salaries of the incumbent in 1986. As is evidenced in the
11 Betts pension, the Constitutional Amendment greatly limited the current pension payable.
12 CalPERS could have informed the legislature about the LSO pensions, requested to include the
13 LSO pension in the Constitutional Amendment, and in all likelihood if the LSO pension had
14 been included in the Constitutional Amendment, it still would have passed. However, neither
15 CalPERS nor the Legislature included the LSO pension in the Constitutional Amendment. The
16 LSO pension was never limited for vested, pre 1981 retirees.
17 Unfortunately, CalPERS seeks only not to pay, and to that end and result, they will
18 seemingly argue most anything and claim almost any power or right.
19
20 HARVEY ROBINSON’ TESTIMONY
21 The most credible percipient and expert witness in the hearing, Mr. Harvey Robinson,
22 the only unpaid witness in this matter, presented compelling expert information on the meaning
23 and calculation methodology of GC 9359.10 and GC 9360.10. Mr. Robinson worked 29 years at
24 CalPERS, including several years as a JRS LRS co-coordinator that oversaw the benefits
25 payable in this and related LRS matters.
- 19 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Mr. Robinson interpreted and translated the statutory language of various LRL and
2 PERL statutes into calculation methodologies for 29 years. In his legislative analyst positions for
3 CalPERS, Mr. Robinson wrote or refined a good amount of the law that is now present in PERL.
4 More recently, Mr. Robinson trained CalPERS government affairs staff on how to read,
5 understand, and interpret LRL and PERL pension law. Mr. Robinson is undoubtedly the expert
6 with the most knowledge about statutory construction, calculation methodologies, and the
7 intricacies of LRL and PERL. Mr. Robinson is also the witness with the least bias in this matter.
8 In Brief, Mr. Robinson assured the court that the Advance Ruling was a correct
9 interpretation. Mr. Robinson also assured the court that the calculations in EXHIBT 64 that were
10 performed by Martha Nishi for 10 years from 1970 to 1979 were correct. Mr. Robinson testified
11 that those calculations should have continued from1980 to the present and it was inappropriate
12 for CalPERS to stop them.
13 In addition, Mr. Robinson was the CalPERS senior employee who wrote the 1991 memo
14 in the Alexander file indicating that the pension was miscalculated. He authenticated the memo
15 and indicated that he still believed that the Alexanders had been underpaid. On cross
16 examination, Mr. Robinson admitted that he had not informed the Alexanders. He also indicated
17 that he learned not to question his CalPERS bosses when they indicated to him that CalPERS
18 did not want to correct the Alexander miscalculation. Prudently, he wanted to remain employed.
19 Although CalPERS counsel indicated that Mr. Robinson should have done more about
20 this miscalculation, it was clear that CalPERS senior officials did not want Alexander’s
21 underpayment corrected and CalPERS did not want to inform Alexander. Mr. Robinson
22 testified that he did not and would have had the power to inform Alexander. It was not his job to
23 make policy or reverse his superiors. Mr. Robinson clearly understood at that point in 1991
24 Alexander had never been informed and had never waived any part of his pension.
25 Mr. Robinson also testified about COLAS, saying that it was appropriate to increase the
base allowance (based on the salary of the incumbent Secretary of the Senate) for all of the
- 20 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 COLAS since Alexander’s retirement in 1969. In other words, Mr. Robinson testified that serial
2 COLAs with a base year in the year of retirement (i.e. 1969) were appropriate. Mr. Robinson
3 testified that all COLAS in PERL and LRS started from the date of retirement or the year after
4 retirement. He testified that there was no pension calculation that provided for a different base
5 year or a future base year. Mr. Robinson testified that there was no pension calculation that
6 provided for a one years’ COLA.
7 Mr. Robinson also testified that GC 21499 applied to increase the accrued but unpaid
8 benefits or the post retirement benefits that were not paid by the greater of the “net earnings
9 “rate” or PERS or otherwise pursuant to GC 21499. He testified that they applied to Alexander’s
10 underpayment starting in Feb 1998.
11 Mr. Robinson testified, as a long-term employee of the death benefits section of
12 CalPERS, that the Option 2 benefit provided for the beneficiary to receive the same benefit that
13 Mr. Alexander would have received had he been alive (i.e. increases for both increases in the
14 salary of the incumbent and for all COLA starting in 1969).
15 Lastly Mr. Robinson testified that he had reviewed Respondent’ Exhibit 120 and that the
16 methodology in Exhibit 120 was the correct methodology for calculating the pension payable to
17 Mr. and Mrs. Alexander and the correct methodology for calculating the underpayment. We did
18 not ask him to testify to specific interest calculation, but he indicated that he thought that
19 CalPERS had assumed an interest liability. He reiterated his 1991 memo that CalPERS had
20 underpaid the Alexander and assumed an interest liability.
21 After his testimony, the Betts matter arose. At Respondents’ request, Mr. Robinson
22 performed various calculations related to the Betts matter. Robinson declared under perjury in a
23 Declaration of Harvey Robinson attached to this Brief, the correct calculation methodology for
24 Betts is based in the incumbent salary of the Treasurer until 1986, and further increased by serial
25 COAL that run from 1954 under GC 9360.9.
- 21 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 ANNE WOODWARD’S TESTIMONY
2 Although CalPERS counsel cites Ms Woodward’s title as authority for her competency,
3 in the hearing Ms Woodward could not even calculate the pension amount. In the hearing she
4 stated that the pension payable was based on the salary of the incumbent and one year’s COLA.
5 Woodward invented yet another new theory of how to calculate the Alexanders’ pension. She
6 also stated that the COLA would be applied simultaneously with an increase in the salary of the
7 incumbent. CalPERS had not previously presented this new interpretation. Ms Woodward’s
8 calculation methodology was at least the third new interpretation of the LSO pension statute that
9 CalPERS has presented in the last year.
10 CalPERS would present one old theory and 2 new theories in the hearing, each of
11 which was inconsistent with the other.
12 As far as the old theory, CalPERS yet again endorsed in its “EXHIBIT A” the original
13 interpretation present in the “Nishi “ calculation (EXHIBIT 64) that were performed for the first
14 10 years of the Alexanders pension. However, the “EXHIBIT A” that CalPERS entered into
15 evidence did not agree with Ms Woodward’s testimony or Mr. Milligan’s’ later half hearted
16 inventions.
17 Ms. Woodward is not credible. Ms Woodward testified that there are no serial COLAS in
18 the Legislators Retirement Law. When Respondent’s counsel referred her to GC 9360.9, Ms
19 Woodward was unable to even read the language correctly. Respondent’s counsel had to ask Ms
20 Woodward several times to re-read the section of GC 9360.9 where the COLAs have a base year
21 of 1954 even though the law was instituted in 1963. Repeatedly and improperly, she said
22 “1964”when the GC 9360.9 clearly read “1954”.
23 Clearly there are serial compounded COLAS in LRL. Ms Woodward would apparently
24 rather misstate the words of the statute than admit the obvious presence of serial COLAs. Ms
25 Woodward was either (i) unable to read or interpret LRL competently and/or (ii) Ms Woodward
was simply not credible. Either way her testimony must be disregarded.
- 22 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 In addition without legal training and apparently without the ability to perform the
2 mathematical calculations or turn the language of a statute into a calculation methodology, Ms
3 Woodward’s testimony about the law, serial COLAS, or the calculation methodology of the
4 Alexanders’ pension is of no value.
5 Importantly, and reflecting on her bias, Ms Woodward was the person in charge of
6 paying the benefits correctly to Mr. Alexander. Although she had one and a half employees and
7 only 240 member files to oversee, Ms Woodward claims that she was unaware of the large
8 Alexander file or the various memos in the file saying that the pension was under calculated. Her
9 statement defies belief.
10 However on cross examination, Ms Woodward admitted that the yearly information
11 CalPERS provided to Alexander was incorrect at least since 1998 and incorrect in fact since
12 1980; that CalPERS had never informed Alexander of the underpayment, that CalPERS had in
13 fact particularly informed Alexander that he was overpaid yet still paid his ( incorrect) benefit
14 in full from 1997 onward; that CalPERS had breached its fiduciary duties in failing into inform
15 Alexanders; that the information required was complex; that CalPERS had never offered
16 Alexander notice, or a hearing or appeal rights; That CalPERS had misinformed the
17 Alexander’s; and other similar admissions.
18 Respondent counsel asked Ms Woodward to calculate a pension where over 10 years the
19 $1000 salary of the incumbent increases one dollar a year but the cost of living increases 10%.
20 This example was an attempt to illustrate that CalPERS calculation of the Alexander pension as
21 being the salary of the incumbent and one year’s COLA would not maintain purchasing power if
22 the percentage increases in the salary of the incumbent was less than percentage increases in the
23 cost of living. Indeed, the example illustrated that effect. Exhibit 126 indicates that, under Ms
24 Woodward’s calculations, the pension in year 9 would be only about 20% greater than the
25 pension in year one. Yet the pension increase in years 2-8 would be less than one percent. When
the pension increases are less than the cost of living, the pension falls to maintain purchasing
- 23 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 power. As such, instead of it being a double COLA pension, it is a ‘less than one COLA’
2 pension.
3 Ms Woodward completed the exercise in Exhibit 126. Respondent’s counsel then asked
4 her to calculate the real percentaage increase in purchasing power in year 2. She calculated that
5 it was less than one percent. It was at that point that she admitted that her methodology was
6 wrong. Although she simply said that she was wrong, and would not elaborate, it was clear that
7 her math was, even if not perfect, sufficient to recognize the erroneous calculation methodology
8 that she offered as the pension calculation for Mr. Alexander’s pension. Ms Woodward admitted
9 that the calculation methodology of the incumbent’s salary with one year’s COLA was incorrect.
10 Although CalPERS attempts in its closing brief to attack the example, Respondent’s
11 example was clear, informative, and illustrated CalPERS’ folly and mistake. Woodward
12 recognized and admitted under oath that the theory and CalPERS pension methodology was
13 mistaken. Even CalPERS counsel recognized the error. Subsequently and as a result of the
14 example, Mr. Milligan adopted or invented a different statutory interpretation largely because
15 Woodward admitted that her theory was wrong.
16 On cross examination, Ms Woodward admitted that the amount that Alexander paid into
17 the LRL in 1969 was correct and was not in question. She admitted that Alexander paid the
18 correct amount into LRL in 1969 when he transferred systems. However, in CalPERS Closing
19 brief, CalPERS argues that the amount paid is in question.
20 In general, Ms Woodward was unconvincing in her testimony except for the matters
21 where she admitted that she and CalPERS were wrong. When admitting that she was wrong and
22 that the pension calculation she proposed was wrong, she was credible.
23 ALAN MILLIGAN 24 CalPERS counsel stresses Milligan’s position as senior CalPERS actuary. Respondent 25 believes that Milligan correctly calculated the matters in “EXHIBIT A”, especially scenario G2.
- 24 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 To the extent that he calculated those matters correctly, and that those matters independently
2 presented to the court are a correct calculation methodology of the pension, Respondent agrees
3 with Milligan.
4 However, a great deal of Milligan’s oral testimony seemed at the behest of CalPERS
5 counsel to back away from (i) Anne Woodward’s theory and (ii) the “EXHIBIT A” that he had
6 calculated and which he presented to the court as correct. It was fairly obvious that Milligan,
7 when pressed, was uncomfortable with that role. He was evasive, obfuscated, lectured, failed to
8 directly answer questions, offered collateral irrelevant matter, lectured some more, wished to
9 testify on legal matters when he was surrounded by lawyers, and generally seemed noticeably ill
10 at ease when directly presented with contrary fact.
11 Milligan also offered yet a new interpretation of GC 9359.10 in oral testimony. Instead
12 of following the statute or offering a mathematical calculation, Mr. Milligan invented yet
13 another new calculation method. In order to reach the result that CalPERS apparently desires,
14 Milligan inappropriately and without support entered a logic statement into GC 9359.10 that is
15 not present in the statute. Mr. Milligan testified that GC 9359.10 calls for a comparison of (1)
16 the salary of the incumbent of the Secretary of the Senate with (2) COLA adjusted pension paid
17 the retiree in the prior year.
18 In the Closing Brief, CalPERS states this latest theory: “every time the incumbent salary
19 increased, it [presumably referring to the incumbent salary] should be compared to the most
20 recent pension payment being received by the retiree”.
21 This new invention has no support in the words of the statute (or in any prior CalPERS
22 interpretation). Clearly and indisputably, Milligan’s theory fails to include the salary of the
23 incumbent in the base allowance calculation. There is no support in all of PERL or LRL (or any
24 other pension law that we are aware of) for this new interpretation. There is no support in all of
25 PERL or LRL (or any other pension law that we are aware of) for entering this new logic
formula into the math mathematical equation of GC 9359.10.
- 25 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Clearly GC 9359.10 calls for comparing (i) the salary of the incumbent against (ii)
2 the highest salary the retiree earned in office. That comparison is clear. The greater of the
3 salary of the incumbent or the highest salary in office then assumes the first factor in
4 determining the base allowance of the pension. In no place in no law does a pension call for
5 comparing the salary of the incumbent against the COLA adjusted pension. That is simply
6 fiction; and not persuasive fiction at that.
7 Milligan’s new theory basically allows for one cost -of-living adjustment. If the
8 Legislature in its wisdom does not increase the incumbent Secretary of the Senate’s salary
9 sufficiently, CalPERS will apply a Year’s COLA. However, if the Legislature increases the
10 incumbent’s salary greater than the COLA, CalPERS will not apply a COLA. In subsequent
11 years, CalPERS may or may not increase the pension for COLAs if the salary of the incumbent
12 is still greater than pension.
13 In other words, in some years, CalPERS will apply the COLA statute and in other years
14 CalPERS will not apply the COLA statute2. This should be called the “Rule on Alexander”
15 because CalPERS only applies it to Alexander3. In any case, Milligan’s Rule on Alexander is not
16 a tolerable reading of the statutory language. Either a statute applies or it does not apply. A
17 statute can not be applied whimsically or arbitrarily. CalPERS should not be in a position of
18 second guessing the Legislature with respect to the pay of the incumbent or the pension payable
19 pursuant to Legislation. CalPERS should just administer the law. In government pensions, a
20 COLA statute applies yearly.
21 Directly contrary to what Milligan actually wrote in his various Exhibits, CalPERS now
22 says that Milligan does not believe that support for serial COLAS exists in LRL. Besides being
23 contradictory and paradoxical, this is just plain wrong and defiant. GC 9359.10, 9360.9 and
24 2 Although the theory does not withstand scrutiny, it is unclear if CalPERS is comparing (i) the modified base allowance or (ii) the unmodified base allowance or (iii) the actual salary of the incumbent with (iv) the pension last 25 paid the retiree. 3 CalPERS may also apply the COLA statute to some people but not to Alexander. Specifically, LSOs who vested after 1982 will always receive a COLA increase, but Alexander will only receive a COLA increase if the Legislature fails to sufficiently increase the salary of the incumbent.
- 26 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 9360.10 all provide for serial COLAS. Serial COLAS are the rule in LRL and PERL. The
2 difference in Alexander is that the base allowance increases for increases in the salary of the
3 incumbent (which may or may not include adjustments for COLA increases).
4 Mr. Milligan also testified to the calculation of damages. Mr. Milligan testified that the
5 Scenario G2 of his “EXHIBIT A” was almost identical to Schedules 3.2 added to Schedule
6 4.2 of Exhibit 120. They contained the same salary of the incumbent, the same 2/3 factors, the
7 same .804 factors, the same amounts paid the Alexanders, the same result, and the same serial
8 COLAS amounts. CalPERS’ Scenario G2 of his “EXHIBIT A” and Respondents’
9 Schedules 3.2 added to Schedule 4.2 of Exhibit 120 contained almost identical results.
10 As of Dec 31, 2005, Respondents’ Schedule 3.2 describes the underpayment owed from
11 June 1979 to Clarence Alexander’s death in Feb 1998. Schedule 3.2 applies interest at 7% over
12 the whole period. The result of Schedule 3.2 is $3,608,936. Respondents’ Schedule 4.2 describes
13 the underpayment owed to Frances Alexander starting in March 1998. Applying interest at 7%,
14 the interest and principal owed to her is $2,815, 971. The sum of the money owed both Frances
15 and Clarence adding interest at 7% is $ 6,424,907.
16 Scenario G2 of CalPERS’ ““EXHIBIT A”” applies interest at 7% and yields $6,425,066.
17 The difference between CalPERS and Alexander over the period of 1979 to Dec
18 2005 was only one hundred fifty nine dollars ($159) on a sum exceeding $6,425,000 with
19 interest at 7%. The percentage difference is 0.00247 %. Mr. Milligan testified that those
20 differences were due to rounding and that Tom Collins had performed the calculations correctly.
21 Mr. Milligan’s ““EXHIBIT A”” and Tom Collins Ex 120 were almost exactly the same when
22 using the same assumptions.
23 In this case, the relevant similarities between ““EXHIBIT A”” and Exhibit 120 are
24 persuasive and convincing evidence that the common characteristics shared in these
25 EXHIBITS represent the proper calculation methodology. Mr. Milligan performed his
““EXHIBIT A”” calculations independently and arrived at an almost identical number.
- 27 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Mr. Milligan applied interest on each of his scenarios.
2 Mr. Milligan also testified to the meaning of the terms of art “accrued but unpaid pension
3 benefits” to mean that the sums payable but unpaid to Alexander would fall into that definition
4 for the purpose of applying penalty interest under GC 21499. Mr. Milligan testified that he did
5 not apply penalty interest and that he did not apply a floor underneath the LRS fund rate because
6 he was instructed not to and that GC 21499 did not apply.
7 If the unpaid benefit was an “accrued but unpaid monthly benefit” as Mr. Milligan
8 testified, then logically the underpayment should earn penalty interest at the net earnings rate of
9 GC 214999 with a floor interest rate.
10 Lastly Mr. Milligan refused to perform certain calculations such as the exact
11 mathematical calculation of the Alexander’s pension benefit. In one instance Milligan told that
12 court that he needed a computer. Respondent counsel offered his computer. Then he told the
13 court it would take too long. We believe that he refused to perform those math calculations
14 because it would have been evident that, even under his theory, Mr. Milligan was not calculating
15 the pension based on the salary of the incumbent (as the parties have agreed).
16 Mr. Milligan’s “EXHIBIT A” is far more credible in that it was prepared beforehand
17 without apparent direct instruction from CalPERS counsel to avoid the obvious result of owing
18 the Respondent at least $6,425,000 as presented in Scenario G2 of “EXHIBIT A”.
19 Lastly, CalPERS’ Closing Briefs greatly exaggerates or misstates Mr. Milligan’s
20 testimony. Milligan never testified to “windfall benefit” .He never testified to the law. He never
21 testified to legislative intent. He never testified to the meaning of GC 9359.10. He never testified
22 to “permanent purchasing power” and other issues.
23 As an actuary and mathematician without legal training or credentials, Mr. Milligan was
24 present to testify to “math” and to the calculations he performed in “EXHIBIT A”.
25
CALPERS’ OBJECTIONS WAIVED
- 28 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Respondents properly asked several hypothetical questions to Alan Milligan and Anne
2 Woodward. Respondents’ questions were aimed at elucidating the essential logic flaws and
3 failures in CalPERS’ arguments. The hypothetical were successful in illustrating that CalPERS
4 theories are unsound and largely recently invented. In fact, CalPERS changed its arguments after
5 Woodward recognized the flaws in her theory.
6 Now, after the fact, and a week after the hearing, CalPERS argues that Respondents’
7 questions and hypothetical were not appropriate. However, at the time, CalPERS never objected
8 on ground of “facts not in evidence” or any other proper objection (if there was one). Since
9 CalPERS failed to object or properly state a ground for objection, their objections are waived.
10
11 TOM COLLINS TESTIMONY
12 Tom Collins accurately and correctly performed the calculations in Exhibits 120.
13 Both Harvey Robinson and Alan Milligan agreed that the calculations in Exhibit
14 120 were correct.
15 Harvey Robinson explicitly endorsed the calculation methodology in EXHIBIT 120 as
16 being correct. Harvey Robinson explicitly endorsed the calculation methodology in Exhibit 120
17 as being the correct way to determine the amount of the monthly underpayment.
18 Mr. Milligan indirectly endorsed the calculation methodology in EXHBIT 120. In certain
19 scenarios, the calculations in Exhibit 120 and “EXHIBIT A” were basically equivalent. Mr.
20 Milligan also admitted that Tom Collins had performed the calculations correctly.
21 Exhibit 120 is the correct calculation methodology and the correct estimate of damages.
22 The DISPUTE OVER THE EVIDENCE SUPPORTING THE CALCULATION METHODOLOGY IN THE BETTS MATTER. 23
24 Judge Lew brought up the calculation methodology in Betts because CalPERS
25 introduced evidence of the gross amount of Betts pension (after it was limited by the 1986
- 29 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 constitutional Amendment that did not limit the LSO pension). Judge Lew requested additional
2 information about the methodology. The Betts 2005 pension increase notice sent to Betts (which
3 CalPERS had not previously provided Respondent even though requested several times) showed
4 a pension in the amount of approximately $8500.00 a month. This amount was putatively offered
5 to indicate that the amount that Respondent is seeking is too high.
6 Respondent advised the court at the hearing after lunch on March 1, 2006 that the
7 original Betts court documents from the OAH to Supreme Court cases were likely in the State
8 archives. CalPERS’ original calculation sheets and correspondence documents had been filed
9 with the original Betts court case. Respondent told the court that we would endeavor to get those
10 documents to the court and CalPERS as soon as possible.
11 Judge Lew specifically asked CalPERS for more information on the calculation
12 methodology of the Betts pension.
13 CalPERS has not provided the Betts documents that Respondent provided. CalPERS has
14 not provided any original Betts documents or actually demonstrated the calculation methodology
15 pursuant to the Treasurer pension.
16 Instead, CalPERS responded with one document Exhibit B, a spreadsheet created for
17 this litigation. CalPERS offers a spreadsheet created for this litigation that misleadingly fails to
18 indicate that Betts’ 1979 pension amount was based on the salary of the incumbent Treasurer in
19 1979.
20 Equally importantly, the spread sheet also deceptively fails to indicate that the Treasurer
21 did not receive any pay increases raises for period of 1979 to 1985.
22 Because the Treasurer did not receive any pay increases over the period of 1979 to 1985,
23 the spreadsheet and the pension would not indicate increases for increases in the salary of the
24 incumbent. Since the incumbent Treasurer did not have a pay raise for the whole period of the
25 example, the “double” incremental increase would not be applied.
- 30 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 However, the 1973 and 1976 calculations clearly indicate that the Betts pension was
2 increased for both increases in the salary of the incumbent Treasurer (after Betts retired) and for
3 serial COLAs with a base year of 1954.
4 Respondent believes that CalPERS spreadsheet is a less than candid representation
5 of the calculation methodology.
6 To prevent a ruling based on faulty or less than candid information, Respondent has
7 endeavored to place into the record CalPERS’ actual files from the Betts case. CalPERS has
8 challenged the admission of its own documents because they are “late filed”, even though they
9 could not possibly have been admitted earlier because theses were not issues raised previously
10 by CalPERS.
11 The appropriate Betts calculations are very important.
12 The following page represents a calculation of Betts actual pension. It is important to
13 note that Betts’ current actual pension is based on (1) the increases for the salary of the
14 incumbent Treasurer until 1986 [until limited by Constitutional Amendment] and (2)
15 cumulative serial COLAS since 1954.
16 Part of the data is missing because CalPERS refuses to supply additional information.
17
18
19
20
21
22
23
24
25
- 31 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 BETTS RETIREMENT ALLOWANCE Betts retirement allowance - Retirement Effective date 9/1/1976 2 Year Base COLA COLA Total Opt 3 %of 3 Allowance 1954 base yr Increase 88.2% increase 4 1976 $716.634 103.3% $740.28 $1456.91 $1284.99 5 1977 $716.63 115.4% $826.99 $1543.62 $1361.47 1978 $1167.67 131.0% $1319.47 $2487.14 $2193.65 6 1979 $1416.67 150.4% $2130.67 $3547.34 $3128.75 1980 $1416.67 174.6% $2473.51 $3890.18 $3431.13 7 1981 $1416.67 217.1% $3075.59 $4492.26 $3962.17 1982 $1416.67 252.8% $3581.42 $4998.08 $4408.31 8 1983 $1416.67 276.7% $3919.93 $5336.60 $4706.88 1984 $1416.67 281.5% $3987.93 $5404.60 $4766.85 9 1985 $1416.67 286.5% $4058.76 $5475.43 $4829.33 10 1986 $1416.67 300.2% $4252.84 $5669.51 $5000.51 1987 308.8% $5780.01 $5097.97 1.9% 11 1988 322.9% $5991.10 $5284.15 3.7% 1989 339.8% $6230.51 $5495.31 4.1% 12 1990 361.0% $6530.85 $5760.21 4.8% 1991 385.9% $6883.60 $6071.34 5.4% 13 1992 402.2% $7114.52 $6275.01 3.4% 1993 421.6% $7389.35 $6517.41 3.9% 14 1994 432.7% $7546.60 $6656.10 2.1% 1995 450.9% $7804.44 $6883.52 3.4% 15 1996 466.5% $8025.44 $7078.43 2.8% 1997 483.0% $8259.19 $7284.06 2.9% 16 1998 496.7% $8453.27 $7455.78 2.4% 17 1999 519.3% $8773.43 $7738.17 3.8% 2000 540.15% $9068.81 $8001.27 3.4% 18 2001 NA5 2002 NA 19 2003 568.8%6 $9474.27 $8356.30 2004 NA 20 2005 602.2%7 $9947.86 $8774.01
21
22
23
24 4 Bold indicates salary used or change to incumbent’s salary 5 NA Reflects specific rate information that is not available. 25 6 COLA reflects COLA increases since 1954 compounded in a serial manner.
7 COLA reflects COLA increases since 1954 compounded in a serial manner.
- 32 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 BETTS TIMELINE Betts – salary used at retirement $21,499 2 $21,499 ÷ 12 = $1791.55 x 40% = $716.63 3
4 Year Base COLA COLA Total Opt 3 Increase 88.2% 5 1976 $716.63 103.3% $740.28 $1456.91 $1285.00
6 Incumbent salary after Supreme Court decision $35,000 7 $35,000 ÷ 12 = $2916.67 x 40% = $1167.67 8 Year Base COLA COLA Total Opt 3 9 Increase Amt 88.2% 10 1978 $1167.67 131% $1319.47 $2487.14 $2193.65
11 Incumbent salary effective 1979 $42,500 12 $42,500 ÷ 12 = $3541.67 x 40% = $1416.67 13 Year Base COLA COLA Total Opt 3 14 Increase Amt 88.2% 15 1979 $1416.67 150.4% $2130.67 $3547.34 $3128.75
16 1986 $1416.67 300.2% $4252.84 $5669.51 $5000.51
17 Prop 57 passes and limits Betts pension to current incumbent salary. Had it not passed: 18 Incumbent salary effective 1987 $72,500 19
20 $72,500 ÷ 12 = $6041.67 x 40% = $2416.67
21 1987 $2416.67 308.0% $7443.34 $9860.01 $8696.53
22 Incumbent salary effective 2001 $140,000 23 $140,000 ÷ 12 = $11,666.67 x 40% = $4666.67 24 2005 $4666.67 602.2% $$28,102.69 $32,769.36 $28,902.57 25
- 33 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 REPLY TO CALPERS GENERAL 2 ARGUMENT ABOUT ITS POWER
3 CalPERS’ Power and Statutory Interpretation 4 CalPERS is not entitled to interpret a statute whimsically or erroneously. 5
6 The foremost task of statutory construction is ascertainment of the legislative intent,
7 including consideration of the entire scheme of law of which it is part so that the whole may be
8 harmonized and retain effectiveness. City of Long Beach v. California Citizens for
9 Neighborhood Empowerment (App. 2 Dist. 2003) 3 Cal.Rptr.3d 473, 111 Cal.App.4th 302,
10 rehearing denied, review denied. The express terms of statute may not be changed by
11 construction. First Congregational Church of Glendale v. Los Angeles County (1937) 9 Cal.2d
12 591, 71 P.2d 1106.
13 It is long settled by law that if a statute is unclear or ambiguous, the law is read or
14 construed to entitle the pension beneficiary to more benefits rather than less. Pension laws are
15 to be liberally construed and ambiguities resolved in favor of pensioners. Richardson v. City of
16 San Diego (App. 1961) 14 Cal.Rptr. 494, 193 Cal.App.2d 648..
17 In this case, the documents agree on the Legislature’s intent. EXHBIT 1-2, 13-17, 31-32,
18 36, 38, 43, 49, 50, 64, 65, 68, 74, 75. The language of the statute clearly articulates that intent.
19 The language of the statute must be followed.
20 CalPERS does not like the result. Where a statute is not ambiguous there is no room for
21 construction and inconvenience or hardship which results from following the statute as written.
22 The Statute must be relieved by legislation rather than by construction. Cullinan v. McColgan
23 (1947) 183 P.2d 115, 80 Cal.App.2d 976; Jordan v. Retirement Board, San Francisco City and
24 County Employees Retirement System (1940) 96 P.2d 973, 35 Cal.App.2d 653;
25
- 34 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 The questions of the wisdom, justice, policy, or expediency of a statute are for the
2 legislature alone. California Reduction Co. v. Sanitary Reduction Works (1903) 126 F. 29, 61
3 C.C.A. 91, affirmed 26 S.Ct. 100, 199 U.S. 306, 50 L.Ed. 204; 8 EXHIBIT 49-57.
4 Court cannot ignore plain and unambiguous language of statute merely because not
5 agreeing that statute is wise or beneficial. In re Carter's Estate (App. 1935) 9 Cal.App.2d 714, 50
6 P.2d 1057. EXHBIT 36, 68.
7 Though public policy is sometimes declared by judicial decisions, specific provisions
8 relative to pension rights enacted by a legislative body having jurisdiction over such rights
9 establishes the "public policy" with respect thereto, so that courts may not interfere. McCarthy
10 v. City of Oakland (App. 1 Dist. 1943) 60 Cal.App.2d 546, 141 P.2d 4 CalPERS’ Administrative Interpretation 11 NOT entitled to Much Weight 12
13 Between 1969 and 1979, CalPERS interpreted 9359.10 language calling for increases for
14 the salary of the incumbent and the increases for all the COLAS since retirement (correctly) and
15 in one manner, and then about 1980 later changed their mind and interpreted the statute in an
16 entirely different manner. There was no reason stated for this 1980 change. EXHIBIT 7, 8, 9.
17 While CalPERS changed the interpretation of Government Code 9359.10 for the
18 Alexanders, apparently CalPERS continued to use the original and correct interpretation to
19 increase the pension benefit of Mr. Darryl White from 1991 and Mr. Jim Driscoll from 1986
20 until 1998. The date of the administrative hearing was approximately 18 years after freezing the
21 Alexanders based on a purported change in interpretation of the statute. EXHIBIT 18.
22 After 1980, CalPERS erroneously interpreted and administered the Alexander pension.
23 EXHIBITS 7-10, 12,36, 43, 65, 66, 68. Although CalPERS’ correct interpretation of the statute
24
25 8 Lewis Food Co. v. State Department of Public Health (1952) 243 P.2d 802, 110 Cal.App.2d 759; Watson v. State Division of Motor Vehicles (1931) 298 P. 481, 212 Cal. 279; Ex parte O'Shea (1909) 105 P. 776, 11 Cal.App. 568; Napa Valley R. Co. v. Board of Sup'rs of Napa County (1866) 30 Cal. 435, 1 P.L.M. pt. 2, 14.
- 35 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 from 1969 to 1979 is entitled to due consideration, its interpretation of the statute thereafter is
2 erroneous and not worthy of any deference or consideration.
3 Where there is no ambiguity, statute will be given its proper construction though officers
4 administering it have construed it otherwise, regardless of what the administrative practice has
5 been or how long continued. Petition of Loew's, Inc. (App. 2 Dist. 1947) 179 P.2d 71, certified
6 question accepted, hearing granted.
7 While construction of statute by administrative agency charged with its enforcement
8 must be considered by courts in ascertaining meaning of statute, a clearly erroneous
9 administrative interpretation of unambiguous statute cannot alter clear meaning thereof.
10 California Drive-In Restaurant Ass'n v. Clark (1943) 22 Cal.2d 287, 140 P.2d 657. Official
11 interpretation of statute has no efficacy when in conflict with law itself. Golden Gate Bridge and
12 Highway Dist. v. Felt (1931) 214 Cal. 308, 5 P.2d 585.
13 There has not been consistent application or interpretation of the various statutes
14 (Government Code Section 9359.10 and 9360.10) by CalPERS either as applied to the
15 Alexanders or as applied to the Driscolls and Whites. No particular deference is owed CalPERS’
16 current interpretation of the statute.
17 Great deference is owed to interpretation of statute by agency charged with its
18 enforcement only if there has been consistent administrative construction of statute over many
19 years. City of Los Angeles v. Superior Court (App. 2 Dist. 1995) 46 Cal.Rptr.2d 805, 40
20 Cal.App.4th 593, modified on denial of rehearing, review denied.
21 An administrative agency cannot alter or enlarge the legislation, and an erroneous
22 administrative construction does not govern the court's interpretation of the statute. People v.
23 Beaumont Inv., Ltd. (App. 6 Dist. 2003) 3 Cal.Rptr.3d 429, 111 Cal.App.4th 102, modified on
24 denial of rehearing, review denied.
25
- 36 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 An administrative construction of a statute is only entitled to as much deference as is
2 warranted by the thoroughness evident in its consideration, the validity of its reasoning, its
3 consistency with earlier and later pronouncements, and all those factors which give it power to
4 persuade, if lacking power to control. Ralph's Grocery Co. v. California Dept. of Food and
5 Agriculture (App. 4 Dist. 2003) 1 Cal.Rptr.3d 869, 110 Cal.App.4th 694, review denied.
6 Respondent incorporates the Trial Brief of April 2005 herein.
7 “ TRIPLE DIP” OBFUSCATION
8 CalPERS incorrectly asserts that Respondent wants a pension based on (1) the salary of
9 the incumbent Secretary of the Senate that is (2) further increased by all of the COLAS since
10 retirement in a serial manner (which would include the current year COLA) and supposedly
11 (3) PLUS ONE EXTRA YEAR’S COLA.
12 Respondent has never requested the third component of one extra years’ COLA. In fact,
13 the current year’s cost-of-living would be included under in term or definition of a serial
14 COLA that includes’ ‘increases after retirement’. CalPERS’ “Triple Dip” language betrays a
15 lack of familiarity with GC 9359.10 and GC 9360.10. 16 The “retroactive COLA” is clearly portrayed in the GC 9359.10 language of ‘increases 17 for the costs of living after retirement’. It is further clarified by comparison to GC 9360.9 that 18 provided for all of the costs of living using a 1954 base even though the law first applied in 19 1963. 20 Lastly, every COLAs increase in government pensions in PERL or LRL starts either one 21 or two years after the year of retirement. There is no COLA provision that provides just one 22 year’s COLA. CalPERs would have to cite to a COLA provision that provides just one year’s 23 COLA in order to provide any basis for this “triple dip” prattle. There is no basis for it. 24 BETTS Case 25
- 37 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 CalPERS misstates both the holding and the reasoning in the Betts Case. (Also infra) A
2 separate Brief on the Betts case is field simultaneously and incorporated herein.
3 However, it is clear that Betts receives and has always received a COLA based on a 1954
4 base year under GC 9360.9. In other words, Betts always received a serial COLA. The 1986
5 constitutional Amendment limited Betts to a salary of the incumbent Treasurer in 1986,
6 however it did not address and it did not limit the 1954 COLA provision.
7 Allen Case
8 CalPERS misstates the Allen case as well. Allen is a contract impairment case where a
9 person who was not entitled to the pension benefit sought to receive it. The Supreme Court
10 rejected Allen’s wish.
11 CalPERS cites Allen v. PERS Board of Admin. (1983) 34 Cal.3d 114 as authority for its
12 position that the Supreme Court disapproved of this type of benefit. The Allen case is not on
13 point with the case at hand.
14 In Allen the Court reasoned that the petitioners could not have reasonably anticipated the
15 statutory formula giving rise to their claimed pension benefits. The petitioners were seeking both
16 the formula of Government Code Section 9359.1 which tied the pension to the salary of the
17 incumbent and Government Code Section 9360.9 which granted retired members of the
18 Legislature retroactive COLAs back to 1954.
19 However, in 1967 after Allen had retired, the Legislature passed a statutory pay
20 increase which specifically excluded already retired legislators from using it as a base for
21 pension computation. In Allen, the Legislature acted. In Alexander, we have CalPERS staff
22 changing the interpretation of GC 9359.10 for Alexander only, in secret, without notice, without
23 a hearing and without a right to an Appeal. Since Driscoll and White received the correct benefit
24 until 1998 it seems clear that the 1979-80 decision to limit Alexanders’ pension was not a well
25 reasoned administrative decision or a law making decision.
- 38 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 In Lyon v. Fluornoy (1969) 271 CalApp3d 774, which the Supreme Court in Allen relies
2 upon extensively in its ruling, the court states that “the law making power chose to confine
3 beneficiaries to the gain reasonably to be expected.” The law making power is the Legislature.
4 On the matter of the “gain reasonably to be expected” the Allen case and Alexander are
5 also very different and clearly distinguishable. In Allen, the Court makes a major point of the
6 fact that increases in the salaries of legislators for Costs of Living over a long period of time
7 were consistently defeated by the voters9. The failure to increase salaries rendered that portion of
8 Government Code Section 9359.1 (a) which was in operation at this time (i.e. tying pensions to
9 the salaries of incumbent officeholders) “dormant, for there was no prospect that the voters
10 would raise the salaries of active legislators.” Allen v. PERS Board of Admin. supra.
11 Hence the reasonable expectations of the petitioners in the Allen case could not be based
12 both on Section 9359.1 (a) the statute tying the pension to the salary of the incumbent and
13 Section 9360.9 the statute granting retroactive COLAs back to 1954.
14 Instead Section 9360.9 for these pre-1967 legislators was enacted to compensate them
15 with an alternative formula. The legislature accomplished “directly what it no longer could
16 expect as a result of the original statutory scheme.” Allen v. PERS Board of Admin.
17 Such was not the case in Betts. The Allen court reasoned that “There was no suggestion
18 in Betts, for example, that the statutory scheme for pension enhancement of Constitutional
19 officers, like Betts, was not operating as originally designed.”
20 In Alexander, the statutory scheme was working as designed and intended.
21 The Allen Court quotes the Supreme Court in Betts, “the prior version of Section 9359.1
22 together with Section 9360.9 enacted in 1963 form the basis by which petitioner’s reasonable
23 pension expectations must be measured.”
24 9 While LSOs are elected by the Senators, it is important to note that salaries for Legislative Statutory Officers 25 (“LSOs”) are set and are increased by the Senators themselves in the Senate, not by a vote of the general population. Although Senators respond to constituents, it is generally true that high level staff of Senators are paid more than Senators themselves, often considerably more. The salaries of Senate staff compare more closely with the salaries of persons employed in the private sector. The salary of the Secretary of the Senate increased at the request of Senators.
- 39 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Hence both statutes formed the basis of the statutory pension scheme resulting in
2 reasonably formed expectations on the part of Legislative Statutory Officers such as Mr.
3 Alexander. Like Betts, the statutory scheme for pension enhancement was operating for Mr.
4 Alexander and the Legislative Statutory Officers as the legislature intended. Increases in the
5 salaries of the Incumbent were periodically granted. There was no “dormancy” to the statutory
6 scheme.
7 Formed (i) during his employment (ii) after GC 9359.10 was signed into law and (iii)
8 upon which he relied when he retired, Mr. Alexander’s ‘reasonable expectancy’ was based in the
9 dual increases of the GC 9359.10 formula: (1) increases in the salary of the incumbent Secretary
10 of the Senate; and in addition, (2) further increases for all the cost of living increases after
11 retirement.
12 After retirement, Mr. Alexander’s reasonable pension expectations were also based on
13 CalPERS use of the proper formula for 10 years. This is a major point not present in the Allen
14 case. Furthermore, the question in the Allen case is that of tying the pension to the salary of the
15 Incumbent, a point not in controversy in the present case.
16 In Allen, the Court alludes to the fact that the fixed state contribution of 18.81 percent
17 and the contributions of the retirees would not be enough to pay for the pension benefit. In the
18 present case, the contributions of the LSOs were fixed by statute. Alexander made all the
19 required payments. In fact, in 1969 Alexander received a refund of about $9,000 in excess
20 contributions when he switched from PERS to LRS. (EXHIBIT 124). If PERS had thought
21 that Alexander had not contributed sufficiently, how could they provide Alexander such a
22 significant refund just prior to his retirement?
23 Since or if the state of California paid in what it had indicated its obligation would be at the
24 time the original legislation passed, then there would be sufficient funds in the Legislators’
25 Retirement Fund to cover the costs of Alexander’s pension.
- 40 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Actually, the actuarial value that CalPERS underestimated was ‘mortality rate’, i.e. the
2 number of years that the Alexanders would live. CalPERS had estimated her life expectancy at
3 about 68 years. Frances Alexander lived to be 94. That extra 25 years of life increased the gross
4 payout. As the Alexanders lived longer the pension amount payable grew. But such actuarial
5 risks are CalPERS’ duties and obligations to undertake, not Alexander’s. CalPERS hires the
6 actuaries and defines the rates. In fact, since other LSOs such as Tony Beard died early and
7 likely before their actuarial estimated lives, it is unclear whether overall, the actuarial estimates
8 that CalPERS made for the LSOs were incorrect.
9 Interestingly, during her testimony Ms. Ann Woodward admitted that there was no issue as
10 to the sufficiency of the rate of contribution of Mr. Alexander. Woodward admitted that
11 Alexander contributed the correct amount and performed all the necessary tasks to vest his
12 pension in the GC 9359.10 formula. It is the nature of pension benefit plans that some pay in
13 more than they receive in benefits and some pay in less than they receive back. What is relevant
14 is what the Legislature intended when it passed the legislation.
15 In Allen, the Legislature specifically excluded the legislators in question from any use of the
16 dramatic raise in the salary of the incumbent that took effect after their retirement; in Alexander,
17 the Legislature intended and provided for a pension based in the salary of the incumbent that was
18 additionally increased for all costs of living after retirement. .
19 As far as windfall benefits, it is clear that the Legislature is the appropriate body to change
20 windfall benefits. As was discussed in Walsh, the legislature’s job is to address and if needed
21 change windfall benefits. In this case, when the Legislature changed GC 9359.10 for future
22 LSOs, the Legislature specifically addressed and retained the dual benefits of 9359.10 for
23 already vested LSO such as Alexander, Driscoll and White.
24 In addition, when the Legislature proposed the Constitutional Amendment, it specifically
25 did not include the LSO in the limiting the pension benefit to the salary of the incumbent in
1986. The LSOs were never limited.
- 41 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 REPLY TO CALPERS ASSERTION OF 2 EQUITABLE DEFENSES
3 Introduction 4 CalPERS claims of equitable defenses are without merit and without legal support. 5
6 Perversely CalPERS argues that (i) because CalPERS failed to correctly inform
7 Alexander, (ii) because CalPERS breached its fiduciary duties, (iii) because CalPERS in fact
8 after 1991 knowingly misrepresented the truth, and (iv) because CalPERS misrepresented the
9 pension calculation yearly on the COLAS statement since about 1980, Alexander is to blame for
10 not knowing. Defiantly, CalPERS argues that Alexander should be estopped and barred by
11 laches because Alexander should have known. 12 Again and again, CalPERS misstates the facts and law. CalPERS directly and indirectly 13 blame the Alexanders, when the Alexanders are blameless and acknowledged by CalPERS 14 records and Anne Woodward’s testimony to be ignorant and blameless. CalPERS’ labors to 15 impute knowledge (or ‘should have knowledge’) to the Alexanders should be rejected out of 16 hand when CalPERS records explicitly indicate that the Alexanders did not know. 17
18 Anne Woodward, the CalPERS and LRS managerial representative at the hearing,
19 admitted under oath (i) that CalPERS had not properly informed the Alexanders; (ii) that the
20 Alexanders did not know that there was an underpayment; (iii) that CalPERs had not provided
21 the Alexanders with adequate information; (iv) that the information that CalPERS provided the
22 Alexanders was incorrect and plain wrong; (v) that the Alexanders would not have understood 23 the pension calculation with the CalPERS information provided; (vi) that CalPERS had not 24 provided the Alexanders with an appeal process or hearing; (vii) that CalPERs had not informed 25 the Alexanders that there was an outstanding underpayment of almost a million dollars in
- 42 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF principal in 1995; (viii) that the Michael Priebe memo specifically says that the Alexanders 1 were “unaware” and not informed in Nov 1995 (EXHIBIT 9) and Woodward admitted that 2
3 CalPERS had not informed them thereafter; (ix) that instead of informing the Alexanders or
4 providing a hearing , CalPERS sent a letter that claimed an overpayment to then 85 year old
5 Alexanders followed quickly by a full (incorrectly calculated ) pension payment without
6 formal process or notice of what was truly happening.
7 In other words, Anne Woodward’s admission amounts to a confession of a secret cover- 8 up by CalPERS wherein CalPERS surreptitiously sought to limit Alexanders’ pension without 9 informing the Alexanders, without due process, without a hearing, or other notice or 10 information to the Alexanders. 11 Contrary to CalPERS urging, equitable defenses only support estopping or barring 12 wrongdoers like CalPERS. Among other reasons, CalPERS’ fiduciary duties require CalPERS to 13
14 adequately and unambiguously inform the Alexander of their pension rights. CalPERS breached
15 its fiduciary duties and should not gain an advantage by their breach.
16 Equitable defenses are not intended to bar ignorant or blameless parties like the
17 Alexanders. 18 CalPERS also ignores that one who seeks equity must have clean hands. For at least the 19 last fourteen (14) years, CalPERS hands are soiled and grubby. CalPERS knew of the 20 miscalculation at least in 1991 and intentionally failed to inform the Alexanders annually. Since 21 1980 CalPERS misinformed the Alexanders. If anybody can assert a claim in equity, only 22 Alexander legitimately could. 23
24 Indeed, CalPERS has benefited by its failure to inform and failure to correctly pay the
25 Alexanders’ pension. CalPERS has benefited by its breach of fiduciary duties. CalPERS has
benefited by its misrepresentation. CalPERS has not suffered any loss, damage, prejudice, or
- 43 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF other detriment. On the contrary, CalPERS retained the underpayment and earned above market 1 interest rates since 1980. Even if CalPERS now pays all the money due, with interest and 2
3 interest at the GC 21499 net earnings rates after 1998, CalPERS will still have benefited from
4 not paying the money in a timely fashion. CalPERS will still have made money by not timely
5 and correctly paying the Alexanders the money that CalPERS knew it owed the Alexanders.
6 In general, CalPERS ignores (1)that in 1969 the Alexanders legitimately vested in the
7 dual benefits of the GC 9359.10 pension; (2) that Clarence and Frances Alexander took a 80.4% 8 reduction to their pension in order to cause the pension to continue to benefit Frances for her 9 life with a 100% Joint and Survivor Benefit that provided for payment of all obligations 10 including payment of the same “Double COLA” statutory benefit; (3) that CalPERS owed the 11 Alexanders Fiduciary duties, including duties to correctly and unambiguously inform them of 12 their pension rights and to pay the benefit correctly; (4) that CalPERS knew that Clarence and 13 Frances Alexander were unaware of the underpayment starting in 1979; (5) That CalPERS 14
15 knowingly and intentionally breached their fiduciary duties to the Alexanders since at least
16 1991 (see EXHIBIT 43); (6) that when Clarence died in Feb 1998, CalPERS did not inform or
17 pay Frances Alexander the existing underpayment obligation; (7) That in Feb. 1998, the accrued
18 underpayment obligation survived Clarence’s death and was explicitly payable to Frances under
19 GC 21494-21499 and other code sections; (8) that there is no applicable statute of limitations 20 when CalPERS owes a member money; (9) that Frances Alexander timely made a claim 21 presentation to CalPERS after Clarence’s death; (10) that Frances Alexander timely made a 22 claim presentation to CalPERS soon after discovering the underpayment in October 2003; (11) 23 that the Alexanders never waived any portion of the pension; (12) that the Alexander never 24 acted in any way inconsistent with their need for the pension and the monthly payments. 25
- 44 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF In effect, CalPERS argues the Alexanders are barred by laches (which does not apply to 1 action in law) or equitable estoppel from pursuing the underpayment 25 years of underpayment 2
3 (about $6.5 million under CalPERS’ own calculations) because of CalPERS’ errors and
4 breaches of duty. Even though there is not a shred of law to support their assertion,
5 Respondent must respond to clarify the record.
6 Equity will not permit wrongdoer to set up own wrong to estop innocent person. Federal Land Value Ins. Co. v. Taylor, 1932, 56 F.2d 351. 7
8 Principles of estoppel may not be invoked to directly contravene statutory limitations. Medina v. Board of Retirement, Los Angeles County 9 Employees Retirement Assn. (App. 2 Dist. 2003) 5 Cal.Rptr.3d 634, 112 Cal.App.4th 864, as modified. 10 No statute of limitations applies when CalPERS owes money to a retiree or beneficiary. 11
12 GC 20164. CalPERS’ duties extends to the Alexanders and their successor in interest until all
13 obligations (including payment of the underpayment) have been discharged.
14 A BRIEF on FIDUCIARY DUTY is simultaneously filed and incorporated in total by
15 reference herein. 16 Lastly, CalPERS equitable defenses are untimely. CalPERS never before Feb 15, 2006 17 mentioned or argued Laches or Equitable Estoppel. CalPERS never plead the defenses. There is 18 no mention of equitable defenses in CalPERS’ numerous previous pleadings, including no 19 mention of any defenses in CalPERS April 11, 2005 Statement of Issues signed by Anne 20 Woodward for the CalPERS Division Chief Watson. 21
22 CalPERS in Section XVII of its Statement of Issues pleads:
23 “This appeal is limited to the issues of whether CalPERS’ determination that respondent’s benefit allowance had been improperly calculated; and 24 that respondent’s proper calculation of benefits of $5,277.35/month is correct.” Section XVII, p10 CalPERS Statement of Issues, dated 4/11/05 25 by Anne Woodward
- 45 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF This limitation in the Statement of Issues should be considered a judicial admission and 1 exclude all other argument. 2
3 CalPERS now makes these equitable defense arguments inconsistent with Judge Lew’s
4 Order after Pre-Hearing Conference, of October 3, 2005. Judge Lew ordered:
5 “Should CalPERS’ interpretation of Government Code 9359.10 be upheld, a hearing shall be held and be focused upon the calculation of repayment of 6 amount overpaid to respondent. However, respondent [Alexander] may present evidence on affirmative and other defense at such hearing, including laches, 7 equitable estoppel, unclean hands, agency misconduct, collateral estoppel and other matter she has raised in her answer and/or demurrer t the Statement of 8 Issues. (Emphasis added). 9 Should respondent’s interpretation of Government Code section 93591.0 10 be upheld, a hearing shall be held that will focus upon the correct methodology for calculation of amount underpaid to her.” Section 3 page 2 of Order after Pre- 11 Hearing Conference, October 3, 2005. EXHIBIT 1 attached.
12 CalPERS never objected to this October 3, 2005 order. CalPERS never amended their 13 pleadings to add these defenses. 14 In addition, Evidence Code 623 estops CalPERS from now arguing these issues. 15
16 Evid.Code § 623 Estoppel by own statement or conduct Whenever a party has, by his own statement or conduct, intentionally and deliberately led another 17 to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it. 18
19 However almost 2 years after receiving Respondent’s initial request, a year after filing
20 their Statement of Issues, 4 months after receiving the Order, and on the first day of hearing,
21 CalPERS tries to sneak in additional defenses that have not been previously considered or 22 briefed. Respondent’s prior Motions in Limine, Points and Authorities, and related pleadings 23 seeking to exclude the court’s consideration of and exclude CalPERS’ argument, or evidence of 24 Waiver, Laches, Equitable Estoppel, or other CalPERS’ equitable defenses are incorporated by 25 reference herein.
- 46 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF FACTS RELEVANT TO ESTOPPEL AND LACHES 1 Over his service to the State of California from September 10, 1947 to November 30, 2
3 1969, Mr. Alexander paid 6.5% of his earnings into the retirement plan and was appropriately
4 credited with 22 years, 2 months and 21 days of service credit in late 1969. EXHIBIT 62.
5 His pension privileges and contractual benefit vested likely at the time he was elected
6 Secretary of the Senate under the new terms of 9359.10. But at his retirement in December 1969,
7 he secured the benefit of the dual components of 9359.10. Once the benefits vested and he had
8 secured them with retirement based on a reasonable expectation, the terms of the pension could 9 not be diminished without CalPERS providing a comparable new benefit. 10 On his 1969 Application for Retirement he designated Frances Alexander as his 11 beneficiary under Option 210, which provided the highest continuing allowance to the surviving 12 spouse. EXHIBIT 61. ALX 306. The Election of Legislator’s Retirement Allowance and 13 Beneficiary Designation to be Effective on December 2, 1969 reads: 14 Option 2 –Provides for a life allowance to the named beneficiary less than 15 the modified allowance ( but in most cases greater than on half the 16 unmodified allowance). EXHIBIT 61 page 2 ALX 307.
11 17 Handwriting in Option “2” and the modified amount of “$1,013.05” on the Election
18 form, Clarence elected to reduce their current benefit to 80.4% while he was alive in order to
19 secure the GC 9359.10 pension payments for his wife and beneficiary Frances after his death.
20 CalPERS admits that Clarence Alexander properly chose Option Settlement 2. Exhibit 27. 21 GC 9361.3. Optional Settlement 2 consists of the right to have a 22 retirement allowance paid him or her until his or her death and thereafter to his or her beneficiary for life. 23
24
10 Pursuant to Government Code Section 9359.95 and GC 9361.3. 25 11 The unmodified allowance in 1969 was calculated by CalPERS at $1,260.01 and the modified allowance was calculated at $1,013.05. Basically, $1,260.01 multiplied by the actuarial reduction percentage of 80.4% for the life of both Clarence and Frances yielded a modified allowance of $1,013.05.
- 47 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Option Settlement 2 is an interconnected contract which cause an immediate reduction in 1 the retirement allowance so that the GC 9359.10 benefit will continue to be provided to the 2
3 beneficiary. The actuarial reduction is significant: an immediate 20% loss or reduction.
4 Mr. and Mrs. Alexander understood and expected that the pension benefits would be
5 increased and paid according to the Schrade Bill (enacted as Government Code Section 9359.10)
6 for the longer period of (i) his life or (ii) the life of his wife with (iii) the obligation remaining
7 until satisfied . Frances Alexander’s right as beneficiary of Clarence Alexander’s pension
8 benefits vested upon Clarence’s retirement in 1969 and could not be changed without offering 9 her a comparable benefit. She is entitled to 100% of the dual benefits of GC 9359.10. 10 Over the ten year period between 1970 and 1979, CalPERS correctly administered the 11 formula and provided Mr. Alexander with the correctly calculated pension benefit. EXHIBIT 64 12 (1977 and 1979 calculations by CalPERS) Under GC 9359.10, Mr. Alexander was entitled to a 13 base allowance that was 2/3 of the higher of (i) his salary when he retired or (ii) the salary of the 14 incumbent, the base allowance of which was (iii) further adjusted upward by the Cost of Living 15
16 increases that had occurred since his retirement, using 1969 as his retirement base year. GC
17 9360.10 was used as the reference section for the COLA.
18 It is important to recognize that over the initial ten year period when CalPERS correctly 19 calculated and administered the Alexanders’ pension benefit, there was no question about the 20 intent or meaning of the relevant statutes. 21 At various times, over the period between 1969 and 2005, news reporters and others 22 launched detailed inquiries into the pension benefits of California state employees and 23 legislators. Although there were many articles, some of K.W. Lee’s articles are provided for 24 illustration. EXHIBIT 49. Other articles are included for reference, including articles illustrating 25
- 48 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 that the Schrade legislation was controversial in 1969 before it was passed and signed.
2 EXHIBIT 50 -57.
3 Over this period of 1960 to 2005, there was also a great amount of legislation regarding
4 pensions, and in particular a large amount of legislation concerning pension benefits of
5 government employees and officeholders. There was also several state-wide initiatives aimed at
6 legislative pensions and at least one Constitutional Amendment. There was also a great amount
7 of litigation involving pensions, including several of the cases (Betts, Goldfarb, Olson v. Cory
8 II) that remain the precedent governing these matters.
9 As an agency, CalPERS was and remains sensitive to the media scrutiny and politics.
10 Strangely, at least one news article about “Super Escalator” Pensions was found in the CalPERS
11 member file of Clarence Alexander. EXHIBIT 59. In CalPERS' internal chronology of late 1991
12 or early 1992, the CalPERS author notes: “ NOTES: The case of C.D. Alexander resurfaced recently when a 13 reporter K.W. Lee with KCRA TV called to inquire about former members who had their pensions tied to the salary of the incumbent. All 14 members of the LRS had their pensions linked to the salary of the 15 incumbent until Proposition 57 passed in 1986. However, Proposition 57 failed to include the offices of the Chief Clerk of the Assembly, Secretary 16 of the Senate and the Sergeant At Arms of both houses of the Legislature. Legislation to amend this section of law for these positions to have 17 retirement allowance based only on final compensation occurred in 1981 [for future office holders only and did not effect vested past office holders 18 like Mr. Alexander]. (ALX 128) EXHIBIT 5.
19 At some point in the mid 1970s and early 1980s came further rounds of media inquiries. 20 See EXHIBIT 59. 21 According to CalPERS’ statements, Mr. Clarence Alexander may have been sensitive to 22 these inquiries as well. Although there appears to be few or no records or evidence to support 23 this, CalPERS alleges that Mr. Alexander once visited CalPERS’ office on either March 1, 24 March 15, or March 16, 1976. EXHIBITS 5, 7, and 8. Each of the three documents that mention 25 the Alexander visit describes a different date. Obviously, none were written contemporaneously.
- 49 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 At least 2 of them are inaccurate. The lack of basic accuracy significantly lowers any credibility
2 that they might purport to have.
3 In any event, as the sole and only basis for its equitable defenses, CalPERS alleges
4 that on one visit sometime in March of 1976 Mr. Alexander possibly inquired into the legal
5 effect of “forgoing” or “waiving” a modest, or small percentage of his pension12.
6 On June 24, 1976, Kenneth Thomason, chief of the Benefits Division of LRS, sent Mr.
7 Alexander a letter13 informing him that he could not legally waive his pension rights. It reads:
8 “322-4632 RE: No. LSR 132
9 June 24, 1976 10 Mr. Clarence D. Alexander 6200 Gloria Drive 11 Sacramento, CA 95831
12 Dear Mr. Alexander:
13 I apologize for not having answered your questions about the possibility of foregoing part of your monthly allowance under the 14 Legislators’ Retirement System prior to this date.
15 As promised, I did request a legal review of the questions raised 16 and received benefit of opinion from our Staff Counsel that you cannot voluntarily have your retirement allowance reduced. 17 (Emphasis added).
18 This conclusion is consonant with the majority rule in other jurisdictions. That rule is that the right to receive a benefit fixed 19 by statute cannot be waived, such waiver being contrary to public policy and void (125 A.L.R 723). 20 I hope this is helpful to you. 21 Very truly yours, 22
23 12 At some point in the mid 1970s and early 1980s came media inquiries about the Super Escalator and 24 Double COLA pensions. For example, the article in the CalPERS member file of Clarence Alexander by Jackson Rannells of California Journal describes the Betts case and the various pension benefits of government employees 25 and office holders. EXHIBIT 59. According to CalPERS’ statements, Mr. Clarence Alexander may have been sensitive to these inquiries as well. 13 Interestingly, the June 24, 1976, Kenneth Thomason letter is marked, apparently by CalPERS, in handwriting as “exhibit” yet we are unaware of any proceeding in which it was proposed or used as an Exhibit.
- 50 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF KENNETH G. THOMASON,CHIEF 1 BENEFITS DIVISION KGT:cfm 2 cc: Carl J. Blechinger, Executive Officer” EXHIBIT 10 3
4 Clearly, at most Alexander only inquired about the possibility of waiving a small 5 portion14 of the pension. It is unclear whether he discussed the matter with his wife. Equally 6 clearly, a significant review was made of Alexander’s request. CalPERS' legal counsel reviewed 7 the matter and rendered a legal opinion. The Chief of the Benefits Division of CalPERS passed 8 the legal information onto Mr. Alexander. The legal impossibility of waiver was a significant 9 enough inquiry or matter that a copy of the letter was also forwarded to the Executive Officer of 10 CalPERS. In other words, Mr. Alexander had every reason to rely on the legal opinion that 11 would render it impossible for him to waive any of his pension. 12 In any event, it is patently clear that Alexander never agreed to a waiver, never signed a 13 document waiving any portion of the pension, and never waived any portion of his pension. Any 14 such waiver agreement would have been illegal and void. 15 CalPERS' statements about the inability to waive or forego any of the pension are 16 reiterated several times in their internal memos and documents. 17 CalPERS was aware and noted in its records that Section 3513 of the Civil Code 18 precluded a member from disclaiming a benefit. EXHIBIT 7, 43. This was partially revised 8 19 years later by the passage of AB28, Chapter 17, Statutes of 198315, which allowed a member to 20 waive a benefit within 9 months of the benefit becoming indefeasibly vested. EXHIBIT 7, 33. 21 Because 9 months had long passed since Mr. Alexander’s benefit had vested, Mr. Alexander 22 could not have waived under the new legislation even if he had wanted to. 23
24
25 14 Respondent seeks Judicial notice that the present amount sought is not a small amount. 15 See Bill Analysis of AB28, part of CalPERS file. EXHIBIT 33.
- 51 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 There is no evidence that Mr. Alexander actually intended to waive any portion of his
2 benefit. "Waiver" is the intentional relinquishment of a known right after knowledge of the facts.
3 Bettelheim v. Hagstrom Food Stores, Inc., 249 P.2d 301 Cal.App.1.Dist., 1952
4 At most on one day in1976 Mr. Alexander may have been inquiring about possibilities on
5 one brief conversation on a spring day. The inquiry had no legal effect on Mr. Alexander. There
6 was no waiver. There was no agreement. Any agreement would have been void as illegal.
7 CalPERS believed that Alexander neither could nor did actually waive, forego, or reduce his
8 pension16. Importantly, the late Mrs. Frances Alexander as spouse and pension beneficiary was
9 not a party to this discussion.
10 In other words, this one brief inquiry, especially followed by the subsequent legal
11 denial of any legal possibility, is no basis upon which CalPERS can base or found equitable
12 arguments of estoppel, laches, et al. against Alexander.
13 There are indications in the CalPERS documents we have received that at some point in
14 the 30 years between 1976 and 2006 CalPERS prepared a “disclaimer” for Mr. Alexander to
15 sign. EXHIBIT 74. It is unclear whether CalPERS ever requested that Mr. Alexander sign the
16 document. However, it is abundantly clear that Mr. Alexander never did sign a waiver or
17 disclaimer. It is also abundantly clear that Mrs. Alexander never signed a waiver or disclaimer.
18 CalPERS’ letter to Mr. Alexander dated 6/24/76 from Kenneth Thomason that legally
19 Alexander cannot waive should end any question of the legal or equitable effect of that purported
20 inquiry. EXHIBIT 8, 10.
21 In any event, after June 1976, there were no further discussions or communication
22 between Clarence Alexander and CalPERS about waiving, foregoing or reducing the pension.
23 Mr. Alexander’s pension was not reduced or frozen in 1976 or 1977 or 1978. In these
24 years, Alexander received the benefit of the statute with increases to his pension for (i) increases
25
16 Equitable estoppel is not available as a defense to CalPERS where contract is illegal. Waters v. San Dimas Ready Mix Concrete, 35 Cal.Rptr. 215 Cal.App.2.Dist.,1963.
- 52 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 in the salary of the incumbent and with (ii) further increases for all of the COLAS since
2 retirement, as the law called for.
3 CalPERS, in its internal memorandum from Harvey Robinson, LRS coordinator, to
4 Steven Phillips Chief Post Retirement Services Division dated November 19, 1991,
5 acknowledged that Mr. Alexander could not and did not waive any rights. EXHIBIT 43 “ A review of Mr. Alexander’s file reveals that while he had 6 always received COLA increase, no adjustment has been done due to incumbent salary increase commencing with the increase payable July 1, 7 1980. Documents in the member file indicate that the member in 1976 8 wished to waive a portion of his allowance but was advised there was no legal authority to do so. Until the passage of AB 28, Chapter 17 Statutes 9 of 1983 effective January 1, 1984, Section 3513 of the Civil Code precluded a member from disclaiming a benefit. Chapter 17 provides that 10 this waiver must be exercised by the member within nine months after the interest in the benefit becomes indefeasibly vested. 11 “ Although the member may still wish to waive a portion of his 12 allowance, unless it can be administratively inferred that we failed to inform him of his rights under Chapter 17, staff have calculated that the 13 member’s gross allowance should be increased from the current 14 $7,558.52/month to $17,549.29/ month and that there is a retroactive lump sum payable that approximates $463,658.03. If the preceding 15 lump sum is payable, it could be inferred that the system has also incurred an interest liability and that the annuitant is subject to some 16 interesting federal and state tax consequences. Please advise how you would like us to proceed in the matter.” Internal Memo of November 19, 17 1991. EXHIBIT 43 (Emphasis added)
18
19 It is important to note that the author of this memo, former CalPERS employee Harvey
20 Robinson, ended up testifying as an unpaid and uncompensated expert witness in this matter for
21 the benefit of Clarence Alexander. Clearly, the Alexanders did not know and Mr. Robinson
22 wanted to finally address this situation and correct CalPERS’ prior wrongdoing.
23 Clearly, CalPERS realized and admitted in 1991 that Mr. Alexander had not waived any
24 of his rights. Clearly, the memo indicates that waiver was not even possible. If CalPERS
25 believed that waiver was not possible and had previously informed Mr. Alexander that waiver
- 53 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 was not possible, CalPERS should be estopped from arguing waiver, equitable estopple. Laches,
2 et al..
3 Also clearly in 1991 and again in later memos CalPERS realized that Mr. Alexander was
4 unaware of the underpayment. At no time did CalPERS ever inform Mr. Alexander of the
5 amount or the existence of an underpayment. In the Alexander hearing, CalPERS’ Anne
6 Woodward admitted that CalPERS did not inform the Alexanders.
7 There was no official reply in the CalPERS record to this 1991 memo and this request for
8 guidance. Most likely, after being raised in this Nov 1991 memo, the matter was simply left to
9 drop. Another memo reflects that this memo and the accompanying record were returned without
10 action on 11/19/91. EXHIBIT 12, page number ALX 128.
11 Other than the June 1976 letter (EXHIBIT 10) telling Mr. Alexander that he could not
12 waive his benefit, there was no notice and no acknowledgement to Mr. Alexander of this issue or
13 these monies due. Rather than Alexander, CalPERS should be estopped from arguing that Mr.
14 Alexander waived or otherwise failed to act with respect to any portion of his pension. In about June 1980, CalPERS unilaterally and without notice to Mr. Alexander or anyone 15 outside CalPERS decided to freeze 17 Mr. Alexander’s benefit. Mr. Alexander was wholly 16
17 unaware of this freeze and CalPERS knew he was unaware of it (ALX 13). EXHIBIT 9.
18 4 years after their letter that Alexander could not waive, CalPERS secretly froze
19 Alexander’s pension without his knowledge and without a hearing; only CalPERS was aware
20 that the benefit was frozen. Alexander was ignorant. The yearly COLA documents provide no
21 notice of any change in the calculation and provide no notice that Alexander was not paid the
22 correct pension. 23
24 17 “Freeze” is used relatively in this context. Instead of following the statute, its own prior Bill Analysis of SB 473 at the time of 25 passage, and its previous interpretation, CalPERS unilaterally decided to not provide Mr. Alexander with increases in his pension for (1) increases in the salary of the incumbent; or (2) COLA since retirement. Instead, CalPERS decided to use the pension amount as it existed in 1979 as a base year and then increased it with the COLAs of each subsequent year. There is no statutory or other basis that we are aware of this formula or this interpretation.
- 54 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF A review of CalPERS’ annual statements for the years 1970 to 2004 that were sent to the 1 Alexander provide no clue and no notice of the change in interpretation. EXHIBIT 72. 2
3 In fact after the “freeze”, the COLAS ( and pension) increases to the Alexanders’
4 pension were higher in 1981 ($641.47) and 1982($540.14) than they had been in any of the
5 previous 10 years. The sleight-of-hand in the change in calculations in the years 1978-1981
6 is frankly fairly amazing. In 1979-80, CalPERS significantly cut the Alexanders’ pension,
7 but the immediate change is undetectable.
8 Although his pension was secretly and inappropriately reduced, no advantage ,
9 comparable or otherwise, was offered. No advantage offset the diminished benefit.
10 CalPERS as early as 1979 may have believed that there was a “problem” with the
11 Alexanders’ pension but failed to act and failed to inform Mr. Alexander. EXHIBIT 23, 26.
12 Certainly CalPERS knew in 1991 that there was a problem, but failed to act. EXHIBIT 12, 43.
13 Certainly in 1997, when preparing for the Driscoll and White Administrative action, CalPERS 14 knew there was a problem but failed to act honestly with the Alexanders. EXHIBIT 18, 36, 68. 15 In 2005, it has taken CalPERS almost a year to bring this Administrative action after the appeal 16 was filed. EXHIBIT 24, 25. 17 The change in the benefit caused loss and injury to Mr. and Mrs. Alexander. CalPERS 18 actually benefited from the secret change because CalPERS paid the Alexander less and earned 19 above market returns on the underpayment. The Alexanders’ lost: the change disappointed the 20
21 expectations on which they had acted.
22 Doctrine of equitable estoppel is founded on concepts of equity and fair dealing 23 and provides that a person may not deny existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely 24 upon such belief to his detriment. Raley v. California Tahoe Regional Planning Agency, 137 Cal.Rptr. 699 Cal.App.3.Dist.,1977 25
- 55 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF CalPERS did not inform the Alexanders. EXHIBITS 7-9, 12, 43, 66, 68, 72. CalPERS 1 failed to inform the Alexanders with the knowledge or idea that the Alexander would continue to 2
3 accept the reduced pension benefit unwittingly. The Alexanders were induced to accept the
4 reduced benefit by CalPERS’ knowing and intentional failure to inform them that the benefit
5 amount was significantly below what it should have been.
6 None of the elements to estop the Alexanders are present. All of the elements of
7 Estoppel against CalPERS are satisfied.
8 Elements which must ordinarily be proved to establish an "equitable estoppel" 9 are: (1) the party to be estopped must know the facts, (2) he must intend that his conduct shall be acted upon, or must so act that party asserting the estoppel had a 10 right to believe that it was so intended, (3) the party asserting estoppel must be ignorant of the true state of facts, and (4) he must rely upon the conduct to his 11 injury. Mercantile Acceptance Corp. v. Liles Bros. Motor Co., 334 P.2d 983 Cal.App.3.Dist.,1959 12 CalPERS knew the facts, intended that Alexander rely on them. Alexander was ignorant 13 and actually did rely on CalPERS’ representations. Alexander suffered injury in the amount of 14 almost eight million dollars. CalPERS should be estopped from change in the representation or 15 calculations 16
17 The doctrine of "equitable estoppel" is recognized by statute providing that 18 whenever a party has by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true and to act on such belief, 19 he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it. Code Civ.Proc. § 1962, subd. 3. Bank of America Nat. 20 Trust & Savings Ass'n v. Moore & Harrah, 128 P.2d 623 Cal.App.2.Dist.,1942
21 CLARENCE NEVER ACTED 22 INCONSISTENT WITH THE NEED FOR A FULL PENSION; 23 i.e. HE NEVER WAIVED 24
25
- 56 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF On either March 1, March 15, or 16, 1976, Alexander may have inquired into the legal 1 effect of “forgoing” or “waiving” a modest, or small percentage of his pension. EXHIBIT 5, 7, 2
3 8. This is apparently the conduct that CalPERS uses as basis for the estoppel.
4 Alexander simply inquired into the possibility of something. That does not mean that he
5 intended to do it or have CalPERS act without his consent. For example, he also inquired about
6 the benefits payable to his beneficiary: that did no mean that he wanted to die. There is no logical
7 link between an inquiry and CalPERS desire to act without his consent. Any action required the
8 Alexanders’ knowledge and consent. To assume otherwise is simply a mistake in fact, law ,and 9 logic. 10 Even if he would have waived a small portion of his pension (which is all that CalPERS 11 admits), the amounts in questions (about $8 million dollars) do not represent a small portion of 12 the pension. 13 CalPERS arguments fail even under its own assumptions, logic, and presuppositions. 14 There is no evidence or accurate inferences that Mr. Alexander actually intended to waive 15
16 any portion of his benefit. "Waiver" is the intentional relinquishment of a known right after
17 knowledge of the facts. Bettelheim v. Hagstrom Food Stores, Inc., 249 P.2d 301 Cal.App.1.Dist.,
18 1952
19 In saying that Mr. Alexander could not waive any portion of his benefit, CalPERS knew
20 the facts, intended its representation would be relied on, and made a representation that Mr. 21 Alexander reasonably relied on. Therefore the equitable arguments or defenses would weigh 22 against CalPERS not Alexander. 23 After and with respect to the 1979 pension freeze, Mr. Alexander was ignorant of the 24 facts and law. He was ignorant of the cut to his pension and CalPERS’ justification, if any, for 25
- 57 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF the “freeze”. He was injured by CalPERS’ “freezing” of his benefit and CalPERS’ subsequent 1 attempt to justify the large diminution of his pension. 2
3
4 REPLY TO CALPERS ASSERTION OF ESTOPPEL
5 No facts or law support estopping or otherwise asserting equitable defenses against the
6 Alexanders.
7 For equitable estoppel to apply, the party to be estopped must have done or said something to induce another party to believe that certain facts exist 8 and to act on that belief. Schnyder v. State Bd. of Equalization (App. 3 Dist. 2002) 124 Cal.Rptr.2d 571, 101 Cal.App.4th 538. 9 An "estoppel" is an equitable defense when a party has deliberately led 10 another to believe that a particular thing is true and to act upon such belief to his detriment, but there can be no estoppel when party against whom 11 defense is invoked has plainly caused the other to believe that particular thing relied on is not true and that he acts at his own peril. Young v. Bank 12 of Cal. (App. 1 Dist. 1948) 88 Cal.App.2d 184, 198 P.2d 543. 13 The requisite elements for equitable estoppel against a private party are: 14 (1) the party to be estopped was apprised of the facts, (2) the party to be estopped intended by conduct to induce reliance by the other party, or 15 acted so as to cause the other party reasonably to believe reliance was intended, (3) the party asserting estoppel was ignorant of the facts, and (4) 16 the party asserting estoppel suffered injury in reliance on the conduct. Medina v. Board of Retirement, Los Angeles County Employees 17 Retirement Assn. (App. 2 Dist. 2003) 5 Cal.Rptr.3d 634, 112 Cal.App.4th 864, as modified. 18 The essence of the doctrine of "estoppel" is that one party has by false or 19 fraudulent language or conduct led another to do that which he would not 20 have otherwise done, with result that he has suffered injury. El Rio Oils, Canada, Limited v. Pacific Coast Asphalt Co. (App. 1949) 95 Cal.App.2d 21 186, 213 P.2d 1, certiorari denied 71 S.Ct. 77, 340 U.S. 850, 95 L.Ed. 623.
22 Estoppel is not favored and must be clearly proved. Doria v. International Union, Allied Indus. Workers of America, AFL-CIO (App. 2 Dist. 1961) 23 16 Cal.Rptr. 429, 196 Cal.App.2d 22.
24 Certainty is the essential to all estoppels. National Dollar Stores v. Wagnon (App. 4 Dist. 1950) 97 Cal.App.2d 915, 219 P.2d 49. 25 The doctrine of estoppel is intended for protection of a party and is not intended to be used for purpose of permitting one to perpetrate a fraud
- 58 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF upon another. Edgington v. Security-First Nat. Bank of Los Angeles (App. 1 2 Dist. 1947) 78 Cal.App.2d 849, 179 P.2d 640.
2
3 REPLY TO CALPERS ASSERTION OF LACHES Apparently, although CalPERS did not disclose this to Alexander, CalPERS had ‘issues’ 4
5 with GC 9359.10 years ago. At the least , CalPERS should have instituted administrative
6 proceedings before now, or at least included Mr. or Mrs. Alexander in the Driscoll and White
7 Administrative Hearing. EXHIBIT 36, 68.
8 However, because Alexander was clearly vested and protected by the Betts decision,
9 CalPERS would apparently not have attained the result it sought by pursuing the appropriate or
10 legal paths18. As such, CalPERS took the inappropriate path of failing to inform, hiding the facts, 11 and then not providing Alexander with an opportunity or venue to learn the truth. 12 Most obviously, if CalPERS is to assert equitable defenses, the Alexanders have been 13 prejudiced by CALPERS delay in bringing this matter officially because Clarence Alexander 14 died. EXHIBT 60. Had CalPERS brought this action in 1980, Mr. Alexander could have 15 defended this position and supplied additional information. As it was CalPERS' secret change in 16 the pension, CalPERS did not allow Mr. Alexander the right and ability to fight back or provide 17
18 the information that he had with respect to his pension. Mr. Alexander was ignorant and
19 purposefully kept ignorant.
20 In this case, CalPERS as early as 1979 may have believed that there was a “problem” with
21 the Alexanders’ pension but failed to act and failed to inform Mr. Alexander. EXHIBIT 23, 26.
22 Certainly CalPERS knew in 1991 that there was a problem, but failed to act. EXHIBIT 12, 43. 23 Certainly in 1997, when preparing for the Driscoll and White Administrative action, CalPERS 24 knew there was a problem but failed to act honestly with the Alexanders. EXHIBIT 18, 36, 68. 25
18 Although it could have limited the Alexanders pension by including it in Prop 57, CalPERS and the Legislature failed to include the LSO position in the Constitutional Amendment.
- 59 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF In 2005, it has taken CalPERS almost a year to bring this Administrative action after the appeal 1 was filed. EXHIBIT 24, 25. 2
3 With respect to the Alexanders conduct and the delay in time between 1979 and 2005, the
4 Alexanders neither knew nor had reason to know or suspect that their pension benefit was not
5 being calculated according to statute. From 1980 to 1998, they received yearly increases to their
6 pension and relied on CalPERS to both calculate and deposit their checks according to the law.
7 EXHIBIT 72.
8 However, immediately and very diligently after Jim Niehaus informed the Matuses and 9 Mrs. Alexander in 2003, the Matuses and Alexanders have timely and vigorously pursued this 10 action. EXHIBIT 21, 22. Within days of being informed, Frances Alexander wrote a letter to 11 Anne Woodward of LRS for information related to this situation and a recalculation of the 12 benefit. Thereafter they hired Jim Niehaus as a private consultant to deal with CalPERS on their 13 behalf. After their request for a recalculation was denied, they quickly sought and received legal 14 advice. Frances Alexander’s attorneys quickly pursued legal action and requested information. 15
16 EXHIBIT 24, 25. A lengthy and accurate Appeal was filed in a timely fashion even though
17 CalPERS had not provided all of the documents requested. Mrs. Alexander’s attorney have
18 continued to diligently pursue additional information which has been very slow in coming from
19 CalPERS.
20 Almost all of the delay between 2003 when the Alexander were informed and the present 21 time is a direct result of CalPERS continuing to stall and delay. This institutional tendency to 22 stall and delay has frustrated Frances Alexander’s ability to get justice and her financial fairness 23 for 25 years. 24 There are no reasons why equitable defenses should be applied against the Alexanders. 25 However, major reasons for the doctrines of equitable estoppel and laches which should apply
- 60 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF against CalPERS are that after a period of time, memories fade, principals die or become 1 incapacitated and evidence is lost. In this matter, CalPERS is asserting to the Alexanders a new 2
3 interpretation of 9359.10 never presented to them before—thirty-seven years after the original
4 statute giving LSOs the pension benefit had passed, some twenty-seven years after CalPERS
5 started to compute erroneously and without notice a much more restrictive formula for Clarence
6 Alexander, seventeen years after it re-established the proper computation for retired LSOs except
7 for Clarence Alexander and seven years after it settled with the other LSOs the dispute with
8 them under 9359.10. 9 The doctrine of "laches" is based on knowledge of facts and acquiescence 10 in them to the damage of the other party. Weadon v. Shahen (App. 4 Dist. 1942) 50 Cal.App.2d 254, 123 P.2d 88. 11 "Laches" is founded principally upon the equitable maxims "he who seeks 12 equity must do equity", "he who comes into equity must come with clean hands" and "the laws serve the vigilant and not those who sleep upon their 13 rights", and the propriety of the application of the rules depends upon the conduct and situations of all of the affected parties. Smetherham v. Laundry 14 Workers' Union, Local No. 75 (App. 3 Dist. 1941) 44 Cal.App.2d 131, 111 P.2d 948. 15
16 Delay in the enforcement of a right brought about by the conduct of adverse party does not constitute "laches" barring action. Smetherham v. Laundry 17 Workers' Union, Local No. 75 (App. 3 Dist. 1941) 44 Cal.App.2d 131, 111 P.2d 948. 18 There can be no laches in delaying proceedings to enforce claim if it is 19 brought within period of limitation, unless there are facts or circumstances attending the delay which have operated to defendant's injury. California 20 State Auto. Ass'n, Inter-Ins. Bureau v. Cohen (App. 1 Dist. 1975) 118 Cal.Rptr. 890, 44 Cal.App.3d 387. 21 LACHES INAPPLICABLE AT LAW, STATUTORY DECISION WHERE NO SOL 22 The doctrine of laches is not applicable to this case of statutory construction. 23 In an action at law, the statute of limitations, rather than doctrine of laches, furnishes rule of decision. San Francisco Credit Clearing House v. Wells 24 (1925) 196 Cal. 701, 239 P. 319. 25 NO DAMAGE TO CALPERS
- 61 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Even if CalPERS attempts to assert equitable defenses, there has been no damage or
2 prejudice to CalPERS. In fact, CalPERS appears to have benefited from underpaying the
3 Alexanders all these years. Simply, CalPERS did not pay to money that it should have.
4 Actually CalPERS likely gained money by the delay because it often earned interest at
5 rates greater than the 7% interest payable under the Constitution.
6 "Laches" is a valid defense if the delay appears to have prejudiced the defendant. 7 U.S. v. Bank of America Nat. Trust & Sav. Ass'n, N.D.Cal.1942, 47 F.Supp. 279, new trial granted 51 F.Supp. 751. 8
9 To make doctrine of laches applicable, it must be made to appear that party who interposes it as a defense has suffered prejudice by virtue of delay in commencing 10 his action. Sibert v. Shaver (App. 1952) 111 Cal.App.2d 833, 245 P.2d 514.
11 CalPERS’ UNCLEAN HANDS & AGENCY MISCONDUCT 12 After years of misrepresentations and failure to pay the required sums, CalPERS has 13 instituted an administrative action, yet they should be denied any and all equitable defenses 14 based on unclean hands. EXHIBIT 23, 26. The relief that CalPERS seeks ( to cause the 15 Alexanders to forfeit the underpayment) is the exact wrongful conduct that they are seeking for 16
17 the court and the hearing officer to bless.
18 CalPERS various significant inappropriate acts in this matter, including intentionally
19 denying due process to Mr. Alexander for 25 years should not be condoned or supported.
20 EXHIBIT 7-9, 12, 36, 68. CalPERS actions are wrongful and should bar CalPERS because of its
21 unclean hands from seeking the result that it wrongfully sought.
22 The unclean hands doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy; he must come into court with clean hands, and keep 23 them clean, or he will be denied relief, regardless of the merits of his claim. Yu v. 24 Signet Bank/Virginia, 126 Cal.Rptr.2d 516 Cal.App.1.Dist.,2002
25 In some instances, the defense of unclean hands can be raised in an action at law. Liberty Mut. Fire Ins. Co. v. McKenzie, 105 Cal.Rptr.2d 910 Cal.App.2.Dist.,2001
- 62 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Whether the particular misconduct is a bar to the alleged claim for relief, under doctrine of unclean hands, depends on: (1) analogous case law; (2) the nature of 2 the misconduct; and (3) the relationship of the misconduct to the claimed injuries. 3 Kendall-Jackson Winery, Ltd. v. Superior Court, 90 Cal.Rptr.2d 743 Cal.App.5.Dist.,1999 4
5 It is important to recognize that neither Mr. nor Mrs. Alexander has done anything wrong
6 with respect to CalPERS or their pension and in no way have unclean hands in this matter.
7 On the other hand, CalPERS’ agency misconduct and inappropriate behavior , time and
8 again, is stunning. CalPERS acted inappropriately in order to deny Mr. and Mrs. Alexander the
9 full benefit of their pension; i.e. directly for financial reasons, and directly related to the 10 Alexander’s injury. 11 CalPERS’ BREACH OF FIDUCIARY DUTY 12 CalPERS breach of fiduciary duties are described in greater depth in the attached Brief
13 on Fiduciary Duties. That Brief is incorporated in full herein. 14 NO STATUTE OF LIMITATIONS 15 GC§ 20164 NO STATUTE OF LIMITATIONS WHEN CALPERS OWES MONEY 16 In cases where this system owes money to a member or beneficiary, the period of 17
18 limitations shall not apply. GC§ 20164.The statute of limitations of 3 years explicitly and
19 specifically does not apply if CalPERS owes money to a member or beneficiary.
20 The Alexander claim is properly within the statute of limitations. There is no statute of 21 limitations. 22 With respect to Cal.C.C.P. § 312 General limitations; special casesCivil actions, 23 without exception, can only be commenced within the periods prescribed in this title, after the 24 cause of action shall have accrued, unless where, in special cases, a different limitation is 25 prescribed by statute.
- 63 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF NO STATUTE OF LIMITATIONS 1 SHOULD BE “BORROWED” 2
3 CalPERS’ Fraudulent Concealment.- Statutes of limitation are not intended to protect a party
4 like CalPERS who has, by fraudulent concealment of the underpayment andbenefit
5 miscalcualtion, delayed the Alexanders’ assertion of a right against CalPERS . In all cases a
6 fraudulent concealment of the fact, upon the existence of which the cause of action accrues, is a
7 good answer to the plea of the Statute of Limitations. see Kane vs. Cook, 8 Cal., p. 449.
8 Trusts--Trustee and Beneficiary.—Since CalPERS has undertaken fiduciary duties, the
9 Statute of Limitations, if any, regarding trusts should be considered: the statue of limitations
10 does not run against an express continuing trust until the trustee places himself in hostility to the
11 trust. Schroeder vs. Jahns, 27 Cal., p. 274; Miles vs. Thorne, 38 Cal., p. 335. The Statute of
12 Limitations does not begin to run until the trustee repudiates the trust by clear and unequivocal
13 acts or words, … and such repudiation and claim are brought to the knowledge of the cestui que
14 trust. Hearst vs. Pujol, Cal.Sup.Ct., July Term, 1872; Baker vs. Joseph, 16 Cal., p. 173. See,
15 also, Ord vs. De la Guerra, 18 Cal., p. 67.
16 In this case, although CalPERS secretly kept the money, not until this trial did CalPERS
17 place itself in hostility to the Alexanders, the Alexander pension, or the Alexanders’ trust.
18 Pleading--Pleading of the Statute of Limitations.—CalPERS waived any statute of limitations
19 defense, borrowed or otherwise, by not pleading it. CalPERS never plead a statute of limitations
20 because there is no statute of limitations when CalPERS owes money. See Smith vs. Richmond,
21 19 Cal., p. 476; Lick vs. Diaz, 30 Cal., p. 75. The defense of the Statute of Limitations must be
22 set up in some form either by demurrer or answer, or it will be deemed to have been waived.
23 Grattan vs. Wiggins, 23 Cal., p. 16. It must be pleaded in the first instance and has no day of
24 grace thereafter. See Cooke vs. Spears, 2 Cal., p. 409.
25
- 64 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 CalPERS FIDUCIARY DUTIES
2 REPLY TO CALPERS ASSERTION RE FIDUCIARY DUTIES CalPERS raises new equitable defenses and other matters in various recent motions and 3
4 pleadings. CalPERS has never before now plead laches or equitable estoppel. Theses defenses
5 should be barred as untimely. In addition, there is no support in law or equity for CalPERS
6 equitable defenses. No evidence or law support this assertion. The overwhelming evidence and
7 all of the law directly opposes CalPERS’ allegations.
8 CalPERS admits in its own records that the Alexanders were not aware of the change in 9 pension calculation nor the amount of underpayment (until Jim Niehaus informed them in 2003). 10 EXHIBITS 9, 43. Undeterred by their own records and other evidence, CalPERS alleges that the 11 Alexanders should have known the pension was not correctly calculated. In effect, CalPERS 12 argues that laches and equitable estoppel bar the Alexanders from bringing the action for 13 underpayment now because the Alexanders should have known and failed to act for 24 years. 14
15 CalPERS ignores and fails to mention that CalPERS explicitly owed fidcuairy duties, one
16 of the highest duties in law, to the Alexanders. CalPERS fails to inform the court that the
17 CalPERS Board explicitly adopted and assumed fiduciary duties to its members. CalPERS fails
18 to mention that, among its other fiduciary duties, CalPERS has a duty to adequately and
19 unambiguously inform the Alexanders of their pension rights, including the calculation of their 20 pension benefit. CalPERS also fails to mention that it had a duty to deal with the Alexanders 21 fairly and in good faith. 22 In fact, CalPERS knew and recognized in its internal communications in 1991 and 1995 23 that Alexander did not know about the miscalculation or the amount owing to them. EXHIBITS 24 9, 43. Subsequently, in what amounts to constructive fraud, CalPERS then chose not to act, 25
- 65 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF chose not to inform the Alexanders, chose not to avail the Alexanders the opportunity to pursue 1 their rights and chose not to calculate the pension correctly. 2
3 In a logical twist that defies reason, CalPERS argues that by failing to inform the
4 Alexanders and breaching its fiduciary duties, CalPERS can shift the burden to the Alexanders to
5 request the correct benefit. CalPERS' perversion of the law should not stand. All of CalPERS
6 arguments about laches and estoppel actually benefit the Alexanders, not CalPERS.
7 CalPERS also argues that because Alexander did not dispute the amount of his pension,
8 he accepted it. This argument ignores that “a purported waiver of a statutory right is not legally 9 effective unless it appears that the party executing it had been fully informed of the existence of 10 that right, its meaning, the effect of the waiver presented to him, and his full understanding of 11 the explanation.” Hittle, see infra. 12 CalPERS is required to adequately and unambiguously inform the beneficiary and 13 member of their pension rights, including the correct pension calculation. As CalPERS failed in 14 this duty to inform, there can be no laches or equitable estoppel against the Alexanders. 15
16 CalPERS’ responsibilities to correctly calculate the pensions and to inform the
17 Alexanders et al are CalPERS responsibilities, not Alexander’s. CalPERS is in far better
18 position to know about the pension’s calculation. In fact, CalPERS did know that the pension
19 was being calculated incorrectly. Further, CalPERS knew that Alexander did not know that the
20 pension was being calculated incorrectly. Breaching its fiduciary duties, CalPERS’ failure to 21 inform and to pay Alexander is tantamount to constructive fraud. 22
23 FACTS RELEVANT TO FIDUCIARY DUTIES
24 First employed with the State of California on September 10, 1947 and continuing in 25 active service until November 30, 1969, Mr. Alexander was a member of CalPERS from 1948
- 66 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 until his death in Feb 1998. EXHIBIT 62. He became a member of State Employees’ Retirement
2 System effective March 1, 194819 EXHIBIT 63. His beneficiary and late wife Frances Alexander
3 was also covered as a beneficiary. CalPERS owed fiduciary duties to them over this period.
4 Between 1970 and 2005, CalPERS made yearly statements to the Alexanders informing
5 them of cost-of-living (COLA) increases. EXHIBIT 72. These COLA statements were inherently
6 ambiguous and uninformative, and could not be said to have satisfied the association's fiduciary
7 obligation to adequately inform the employee.
8 Over the ten year period between 1970 and 1979, CalPERS correctly administered the
9 formula and provided Alexander with the correct pension. EXHIBIT 64 (1977 and 1979
10 calculations by CalPERS) Under GC 9359.10, Mr. Alexander was entitled to a base allowance
11 that was 2/3 of the higher of (i) his salary when he retired or (ii) the salary of the incumbent, the
12 base allowance of which was (iii) further adjusted upward by the Cost of Living increases that
13 had occurred since his retirement, using 1969 as his retirement base year. GC 9360.10 was used
14 as the reference section for the COLA.
15 At some point in the mid 1970s and early 1980s, CalPERS received media inquiries. For
16 example, the article in the CalPERS member file of Clarence Alexander by Jackson Rannells of
17 California Journal describes the Betts case and the various pension benefits of government
18 employees and office holders. EXHIBIT 59. It is unknown what Alexander knew.
19 According to CalPERS’ statements, Mr. Clarence Alexander may have been sensitive to
20 these inquiries as well. Although there appears to be few or no records or evidence to support
21 this, CalPERS alleges that Mr. Alexander once visited CalPERS’ office on either March 1,
22 March 15, or March 16, 1976. EXHIBITS 5, 7, and 8. Each of the three documents mentions a
23 different date. Obviously, none were written contemporaneously. At least 2 are inaccurate. The
24 lack of basic accuracy significantly lowers any credibility that they might purport to have.
25
19 Application for State Employees’ Retirement System, dated April 27, 1948 ALX 300. EXHIBIT 35. Also EXHIBITS 50, 57.
- 67 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 In any event, CalPERS alleges that on a one visit sometime in March of 1976 Mr.
2 Alexander possibly inquired into the legal effect of “forgoing” or “waiving” a modest or small
3 percentage of his pension.
4 CalPERS by its own admission conveyed in writing to him that he “cannot voluntarily
5 have your retirement allowance reduced”. EXHIBIT 10. CalPERS' statements about the inability
6 to waive or forgo any of the pension are reiterated several times in their internal memos and
7 documents. On June 24, 1976, Kenneth Thomason, chief of the Benefits Division of LRS or
8 CalPERS, sent Mr. Alexander a letter20 informing him that he could not legally waive21 his
9 pension rights. It reads in relevant part: “As promised, I did request a legal review of the questions raised 10 and received benefit of opinion from our Staff Counsel that you cannot voluntarily have your retirement allowance reduced.” 11 EXHIBIT 10. 12 Section 3513 of the Civil Code precluded a member from disclaiming a benefit.22 after 9 13 months of the benefit becoming indefeasibly vested. EXHIBITS 7,33, 43. 14 There is no evidence that Mr. Alexander actually intended to waive any portion of his 15 benefit. "Waiver" is the intentional relinquishment of a known right after knowledge of the facts. 16 Bettelheim v. Hagstrom Food Stores, Inc., 249 P.2d 301 Cal.App.1.Dist., 1952 17 In any event, after June 1976, there were no further discussions or communication 18 between Clarence Alexander and CalPERS about waiving, foregoing or reducing the pension. 19 Mr. Alexander’s pension was not reduced or frozen in 1976 or 1977 or 1978. In these 20 years, he received the benefit of the statute with increases to his pension for (i) increases in the 21 salary of the incumbent and with (ii) further increases for all of the COLAS since retirement, as 22 the law called for. 23 20 Interestingly, the June 24, 1976, Kenneth Thomason letter is marked, apparently by CalPERS, in handwriting as “exhibit” yet 24 we are unaware of any proceeding in which it was proposed or used as an Exhibit. 21 A finding of waiver requires clear and convincing evidence of intentional relinquishment of a known right with awareness of 25 the relevant facts; the waiver may be express, based on the party's words, or implied from conduct indicating an intent to enforce the right. American Home Assurance Co. v. Societe Commerciale Toutelectric, 128 Cal.Rptr.2d 430 Cal.App.1.Dist.,2002 22 Where Legislature permits particular, limited waiver of right upon satisfaction of set of conditions, it intends that no other related waivers be permitted. In re Marriage of Fell, 64 Cal.Rptr.2d 522Cal.App.2.Dist.,1997
- 68 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 CalPERS, in its internal memorandum from Harvey Robinson, LRS coordinator, to
2 Steven Phillips Chief Post Retirement Services Division dated November 19, 1991,
3 acknowledged that Mr. Alexander could not and did not waive any rights. EXHIBIT 43 “ A review of Mr. Alexander’s file reveals that while he had 4 always received COLA increase, no adjustment has been done due to incumbent salary increase commencing with the increase payable July 1, 5 1980. Documents in the member file indicate that the member in 1976 6 wished to waive a portion of his allowance but was advised there was no legal authority to do so. Until the passage of AB 28, Chapter 17 Statutes 7 of 1983 effective January 1, 1984, Section 3513 of the Civil Code precluded a member from disclaiming a benefit. Chapter 17 provides that 8 this waiver must be exercised by the member within nine months after the interest in the benefit becomes indefeasibly vested. 9 “ Although the member may still wish to waive a portion of his allowance, unless it can be administratively inferred that we failed to 10 inform him of his rights under Chapter 17, staff have calculated that the member’s gross allowance should be increased from the current 11 $7,558.52/month to $17,549.29/ month and that there is a retroactive 12 lump sum payable that approximates $463,658.03. If the preceding lump sum is payable, it could be inferred that the system has also 13 incurred an interest liability and that the annuitant is subject to some interesting federal and state tax consequences. Please advise how you 14 would like us to proceed in the matter.” Internal Memo of November 19, 1991. EXHIBIT 43 (Emphasis added) 15
16 Clearly, CalPERS realized in 1991 that Mr. Alexander had not waived any of his rights. 17 Clearly, the memo indicates that waiver was not even possible. Also clearly CalPERS realized 18 that Mr. Alexander was unaware of the underpayment since 1979. 19 After being raised in this Nov 1991 memo, the matter was simply left to drop. Another 20 memo reflects that this memo and the accompanying record were returned without action on 21 11/19/91. EXHIBIT 12, page number ALX 128. Other than the June 1976 letter (EXHIBIT 10) 22 telling Mr. Alexander that he could not waive his benefit, there was no notice and no 23 acknowledgement to Mr. Alexander of this issue or these monies due. 24 In about June 1980, CalPERS unilaterally and without notice to Mr. Alexander or anyone 25 outside CalPERS decided to freeze Mr. Alexander’s benefit. Mr. Alexander received no notice
- 69 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 and no opportunity to be heard. In fact, Mr. Alexander was wholly unaware of this freeze 23 and
2 CalPERS knew he was unaware of it (ALX 13). EXHIBIT 9.
3 CalPERS’ annual statements for the years 1970 to 2004 provide no clue and no notice of
4 the change in interpretation. EXHIBIT 72. There was no explicit notice or information of the
5 change. There was nothing in the documents (or pension amount) that would put the Alexanders
6 on notice of a change. CalPERS argues that Clarence Alexander ceased receiving letter
7 informing him of an adjustment based on the incumbent’s salary and therefore had reason to
8 know the calculation had changed.
9 First, Alexander did not receive regularly letters even prior to the change in calculation.
10 Secondly, CalPERS arguments are irrelevant. Calculating the pension based on the
11 incumbent’s salary is not an issue—CalPERS concedes that point. The serial COLAs are at issue.
12 Alexander received some COLA increases, just not correct serial ones.
13 Thirdly, Cal PERS was in a far better position than Alexander to calculate the pension.
14 CalPERS did a miserable job. For 18 years, CalPERS incorrectly calculated Alexander’s pension
15 while correctly calculating similar LSO pensions for White and Driscoll.
16 Fourthly and most importantly, CalPERS did not “adequately and unambiguously”
17 inform the Alexanders. CalPERS attempts to hold its elderly pensioners (who had every reason
18 to trust and rely on CalPERS as a fiduciary) to a higher standard than it holds itself.
19 The COLA notices provided no notice and no information about the true dispute and
20 issue. In fact, in regard to the COLA increases, the increases were higher in 1981 ($641.47) and
21 1982($540.14) than they had been in any of the previous 10 years. The sleight-of-hand in the
22 change in calculations in the years 1978-1981 is frankly fairly amazing. In 1979-80, CalPERS
23
24 23 “Freeze” is used relatively in this context. Instead of following the statute, its own prior Bill Analysis of SB 473 at the time of 25 passage, and its previous interpretation, CalPERS unilaterally decided to not provide Mr. Alexander with increases in his pension for (1) increases in the salary of the incumbent; or (2) COLA since retirement. Instead, CalPERS decided to use the pension amount as it existed in 1979 as a base year and then increased it with the COLAs of each subsequent year. There is no statutory or other basis that we are aware of this formula or this interpretation.
- 70 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 significantly cut his future pension, but the change in the formula is undetectable due to the
2 increasing incremental changing amount of the pension.
3 For the period after the late 1980’s and up to approximately 1997, the other LSOs,
4 including the other retirees who held the position of Secretary of the Senate, received correct
5 increased pension benefits. After about June 1979 (the actual time is uncertain), the Alexanders’
6 did not. It appears over these eighteen years from 1979 to 1998, the Alexanders’ benefit was the
7 only one that CalPERS decided to stop adjusting upward with respect to the calculation called
8 for in the statute, at least until 1998. This unequal and discriminatory application of the law
9 against the Alexanders was a clear example of CalPERS intentional violation of law, equity,
10 and constitutional guarantee of equal protection of the laws.
11 CalPERS was certainly aware in 1991 of this decision to stop providing the benefits to
12 Alexander as called for in the statute. (ALX 113-114). EXHIBITS 8, 9, and 43. After CalPERS
13 was expressly attentive to the situation, CalPERS did nothing to correct it. CalPERS violated its
14 duty to provide benefits to members when it received knowledge of this problem but then
15 intentionally failed to follow up, notify the Alexanders, or correct the benefit.
16 Mr. and Mrs. Alexander were totally unaware of this change in computation. According
17 to various internal CalPERS memos dated from 1991 to 1995, CalPERS recognized and admitted
18 that Mr. Alexander did not know. CalPERS acknowledged that CalPERS never contacted or
19 informed Mr. Alexander of these matters. EXHIBITS 7-9, and 43. In all likelihood, CalPERS
20 did not want the Alexanders to know.
21 For example, according to an October 24, 1995 CalPERS memo from Michael Priebe: As outlined in this memo, Mr. Alexander retired from the Legislators’ 22 Retirement System (LRS) on December 2, 1969. Under Government Code Section (G.C. Sect) 9359.10, his retirement benefits are subject to an 23 adjustment each time the incumbent Secretary of the Senate receives a salary 24 increase. In addition, the benefits are subject to a cost-of-living adjustment (COLA) each time an increase is payable under G.C. Section 9360.10. 25 As documented in the file, Mr. Alexander’s pension has been increased with each COLA. However, his benefit has not been adjusted with incumbent salary
- 71 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF increases since 1980. Based on the LRS staff’s interpretation of G.C. section 1 9359.10 stating how to calculate retirement benefits, as of August 1, 1995, a retroactive lump sum of $988,514.31 is payable to Mr. Alexander. In addition, 2 his monthly gross allowance should be $21,944.75, rather than $8570.34 3 which is currently being paid. These figures were reached by calculating the retirement allowance based on the incumbent’s salary and increasing this 4 amount for each COLA since Mr. Alexander’s retirement in 1969. (Emphasis in original). 5 Mr. Alexander is currently unaware of the money which may be owed to 6 him. (Emphasis added). (ALX 13) EXHIBIT 9.
7 Importantly, CalPERS never attempted to inform or contact Mr. Alexander. Mr. 8
9 Alexander had no idea these issues arose. Patently and uncontrovertibly, Mr. Alexander
10 never agreed to any freeze, limited upward adjustment, or reduction in his benefit. He
11 never waived any benefit or signed any release. In 1995, CalPERS acknowledges that
12 Mr. Alexander did not know and never agreed to the freeze. EXHIBIT 9. It should also
13 be pointed out that the October 25, 1995 memo clearly indicates that CalPERS did not
14 believe that Mr. Alexander had ever waived any rights. EXHIBIT 9. 15 LAW OF FIDUCIARY DUTIES 16 CALPERS’ DUTY TO INFORM 17 Duty to Provide Timely and Accurate Information 18 PERS has a fiduciary duty to provide timely and accurate information to its members. (See In 19 re Application of Smith (March 31, 1999) PERS Prec. Dec. No. 99-01 ["The duty to inform and 20
21 deal fairly with members also requires that the information conveyed be complete and
22 unambiguous"]; CITY OF OAKLAND, Plaintiff and Appellant, v. PUBLIC EMPLOYEES'
23 RETIREMENT SYSTEM et al., Defendants and Appellants. United Public Employees' Local
24 790 etc., Real Party in Interest and Appellant. 95 Cal.App.4th 29, 115 Cal.Rptr.2d 151, 02 Cal.
25 Daily Op. Serv. 258, 2002 Daily Journal D.A.R. 345
- 72 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF PERS PRECEDENTIAL DECISION 1 DUTY TO INFORM
2 In a decision that CalPERS has adopted as a precedent, (See In re Application of Smith (March 3 31, 1999) PERS Prec. Dec. No. 99-01), the PERS board agreed that CalPERS is legally 4 obligated to act as a fiduciary to its members including Alexander: 5 LEGAL CONCLUSIONS 6 1. It has been held that the administrator of a pension is a fiduciary in its relationship with its pensioner. Hittle v. Santa Barbara County 7 Employees Retirement Assn., 39 Cal.3d 374 (1995). CalPERS had a duty, in 1978 and since that time, to deal with Smith fairly and in good 8 faith. Included within the fiduciary obligation is the duty to fully inform 9 its members...
10 2. The duty to inform and deal fairly with members also requires that the information it conveyed be complete and unambiguous. 11 3. Government Code section 20160 provides that in order for errors or omissions 12 of members to be corrected three tests must be applied. First, the request for correction must be made within a reasonable time after discovery of the right to 13 make a correction; second, the error or omission must be the result of mistake, inadvertence, surprise or excusable neglect as those terms are used in Code of 14 Civil Procedure section 473; and third, the correction will not provide the member with a status or right not otherwise available to the member. (Emphasis 15 added) 16 4. The cases, including Hittle, which grant relief to members on any ground 17 where wrong retirement elections have been made, do so in situations where it is obvious to any objective observer that the member in fact made a wrong choice 18 at the time it was made. Because he was so ill-informed by his retirement association, Mr. Hittle accepted a one-time total payment of $187.49 in lieu of 19 lifetime disability benefits. In Rodie v. Board of Administration, 115 Cal.App.3d 559 (1981), Mr. Rodie took disability instead of service retirement and later 20 discovered that his social security benefits were reduced by the amount of the disability benefits, whereas they would not have been reduced by service 21 retirement benefits. In both cases, moreover, timely claims were made once the 22 member was on notice that he had made the wrong choice
23 In the Matter of the Application Retroactive Reclassification Industrial Membership from Safety Member of WILLIAM R. SMITH Respondent, 24 And CALIFORNIA YOUTH AUTHORITY (YOUTH TRAINING SCHOOL), Respondent. PRECEDENTIAL BOARD DECISION No. 99- 25 01
- 73 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Case Law- Hittle Requires Full Information 1 Fair Dealing, Especially in Favored Pension Cases :
2 Pensions and Retirement Systems Have Fiduciary Obligations to Deal Fairly and have a Duty 3 to Inform Employees In Hittle, the court found that a handwritten notation on a form letter from a county 4 retirement association to an injured former county employee, briefly mentioning the possibility 5 of filing for disability retirement, was inherently ambiguous and uninformative, and could not be 6
7 said to have satisfied the association's fiduciary obligation to adequately inform the employee.
8 The association did not fulfill its fiduciary duty to the employee to deal fairly and in good faith.
9 In this case, CalPERS’ letters and their omission of various facts in its yearly cost-of-
10 living increases statements was inherently ambiguous and uninformative. They do not satisfy
11 CalPERS’ fiduciary obligation to adequately inform the employee. 12 The Court in Hittle also found that the means by which the association sought to inform 13 the employee of his options in disposing of his retirement contributions were tantamount to the 14 misrepresentation and concealment, however slight, prohibited by Civ. Code, § 2228. Also, 15 there was a presumption, under Civ. Code, § 2235, that the advantage to the association 16 resulting from the employee's choice to withdraw his retirement contributions, rather than seek a 17
18 lifetime allowance, was gained without sufficient consideration and under undue influence.
19 These same factors apply to the underpayment of Alexander’s pension.
20 Without full information and fair dealing, the Court in Hittle held invalid an equitable
21 defense of Waiver.
22 A purported waiver of a statutory right is not legally effective unless it appears that the 23 party executing it had been fully informed of the existence of that right, its meaning, the effect of the waiver presented to him, and his full understanding of the explanation. The 24 first requirement of any waiver of statutory or constitutional rights is that it be knowingly and intelligently made. WILLIAM T. HITTLE, Plaintiff and Appellant, v. 25 SANTA BARBARA COUNTY EMPLOYEES RETIREMENT ASSOCIATION, Defendant and Respondent39 Cal.3d 374, 703 P.2d 73, 216 Cal.Rptr. 733
- 74 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Burden of Proof in Waiver and Other Equitable Defenses
2 In Favored Rights Like Pension . 3 The burden is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation. Doubtful cases will be 4 decided against the waiver. This is particularly apropos in cases in which the right in question is one that is favored in the law. The right to a pension is among those rights 5 clearly favored by the law. Pension legislation must be liberally construed and applied to 6 the end that the beneficent results of such legislation may be achieved. Pension provisions in our law are founded upon sound public policy and with the object of 7 protecting, in a proper case, the pensioner and his dependents against economic insecurity. WILLIAM T. HITTLE, Plaintiff and Appellant, v. SANTA BARBARA 8 COUNTY EMPLOYEES RETIREMENT ASSOCIATION, Defendant and Respondent39 Cal.3d 374, 703 P.2d 73, 216 Cal.Rptr. 733 9 Case Law – Rodie 10
11 CalPERS is trying to shift the burden to Alexander. CalPERS is in effect arguing that
12 Alexander had a duty to request his correct pension. CalPERS argues that because he did not
13 dispute his pension, he accepted it. Both of these responsibilities (to correctly calculate the
14 pensions and to inform the Alexander) are CalPERS’ responsibilities not Alexander’s.
15 Whatever CalPERS’ history of arguing these fine distinctions, it is clear from Rodie that 16 even if Alexander made a mistake by failing to correctly calculate the pension and inform 17 CalPERS ( which we strongly dispute and which the law does not require), CalPERS’ arguments 18 will still fail because of the wide latitude given for correction of mistakes. 19 An employee is required to "file with the board such information affecting his 20 status as a member as the board may require." (Gov. Code, § 20163.) Unquestionably, the statute contemplates that he will furnish correct information. 21 If he furnishes incorrect information, he has failed to perform a required action. Similarly, PERS is required to "determine ... benefits for service and disability." 22 (Gov. Code, § 20123.) If it has miscalculated, it has failed to determine benefits in 23 accordance with its legislative mandate to afford benefits based on the employee's status and service. 24 Our conclusion complies with the established policy requiring a liberal 25 interpretation of pension statutes in favor of the applicant. (See Cavitt v. City of Los Angeles (1967) 251 Cal.App.2d 623, 626 [59 Cal.Rptr. 690].) PERS does not suggest any reason for permitting correction of an employee's mistake in omitting
- 75 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF to perform a required act but not permitting it where his mistake was in performing 1 the action incorrectly.
2 Finally, when section 20180 is read together with section 20165, which provides 3 for monetary "[a]djustments to correct any ... errors in payments to or by the board," (italics added) as it was in Campbell v. Board of Administration (1980) 4 103 Cal.App.3d 565 [163 Cal.Rptr. 198], it becomes apparent that it was intended by the Legislature to apply generally to errors as well as complete omissions to act. 5 In Campbell, the court, which had to decide whether Government Code section 20165 [FN7] required a retroactive upward adjustment of the contributions of 6 former miscellaneous members reclassified as local safety members, described that statute's interaction with section 20180: "[ W]e read section 20180 to provide that if 7 there has been any mistake made by anyone, for any reason, including a mistake by law in the system, the mistake shall be corrected, nunc pro tunc, if it can be 8 done so in accordance with section 20165; otherwise, the correction is to be made 9 only as of the time the corrective action is actually taken .... Section 20180 indicates that errors in the system arising for any reason should be rectified, if 10 possible, by the adjustment procedure set forth in section 20165." ( Campbell v. Board of Administration , supra. , 103 Cal.App.3d at p. 571.) (Emphasis added) 11 Rodie v. Board of Administration 115 Cal.App.3d 559, *566 171 Cal.Rptr. 433
12 We interpret section 20180 as broadly available for the correction of errors or omissions made by employees, their employers, members or beneficiaries, or the 13 system, and resulting from inadvertence, oversight, mistake of fact, mistake of law, or other cause. (Emphasis added). Rodie v. Board of Administration 115 14 Cal.App.3d 559, 171 Cal.Rptr. 433
15 The sections 20180 et al referred to are the mistake statute now under GC 20160 et seq. 16 CALPERS STATUTORY DUTIES 17 Civ.Code § 1573, Civ.Code § 1709, and Civ.Code § 1710 18 Once CalPERS has agreed to undertake fiduciary obligations and liabilities to its 19 members, additional statutory duties of fiduciary arise. Civ.Code § 1573, Civ.Code § 20 1710, and Civ.Code § 1710 all address the duties, obligations, liabilities and 21
22 consequences of being a fiduciary.
23 Civ.Code § 1573 CONSTRUCTIVE FRAUD. Constructive fraud consists: 1. In any breach of duty which, without an actually fraudulent intent, gains an 24 advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or, 25 2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.
- 76 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 "Constructive fraud" allows conduct insufficient to constitute actual fraud to be treated as such where parties stand in fiduciary relationship; difference 2 between actual fraud and constructive fraud is primarily in type of conduct 3 which may be treated as fraudulent, such as failure to disclose material facts within knowledge of fiduciary. Estate of Gump (App. 1 Dist. 1991) 2 4 Cal.Rptr.2d 269, 1 Cal.App.4th 582, review denied.
5 Constructive fraud is presumed from relation of parties to transaction, or circumstances under which it takes place, and often exists where parties to 6 contract have a special confidential or fiduciary relation that affords the power and means to one to take undue advantage of, or exercise undue influence over, 7 other party and, under such circumstances, undue influence will also be inferred or presumed. Main v. Merrill Lynch, Pierce, Fenner & Smith Inc. 8 (App. 1 Dist. 1977) 136 Cal.Rptr. 378, 67 Cal.App.3d 19
9 Reliance element is relaxed in constructive fraud to extent that court may presume reasonable reliance upon misrepresentation or nondisclosure of 10 fiduciary, absent direct evidence of lack of reliance. Estate of Gump (App. 1 11 Dist. 1991) 2 Cal.Rptr.2d 269, 1 Cal.App.4th 582, review denied.
12 ADDITIONAL STATUTORY DUTIES SUPPRESSION OF FACT BY ONE BOUND TO DISCLOSE (FIDUCIARY) 13 Various Statutory Duties are also involved especially about the suppression of facts by 14 one who is bound to disclose it, or who gives information of other facts which are 15 likely to mislead for want of communication of that fact. Civ.Code § 1709,1710 16
17 Civ.Code § 1709. Deceit; damages FRAUDULENT DECEIT. One who willfully deceives another with intent to induce him to alter his position to his injury or 18 risk, is liable for any damage which he thereby suffers.
19 Essence of "fiduciary relationship" is that parties do not deal on equal terms, because person in whom trust and confidence is reposed and who accepts that 20 trust and confidence is in superior position to exert unique influence over dependent party. Goodworth Holdings Inc. v. Suh, N.D.Cal.2002, 239 F.Supp.2d 21 947, motion to amend denied, affirmed 99 Fed.Appx. 806, 2004 WL 1153696. 22 Civ.Code § 1710 Deceit defined DECEIT, WHAT. A deceit, within the meaning 23 of the last section, is either: 1. The suggestion, as a fact, of that which is not true, by one who does not believe 24 it to be true; 2. The assertion, as a fact, of that which is not true, by one who has no reasonable 25 ground for believing it to be true; 3. The suppression of a fact, by one who is bound to disclose it, or who gives
- 77 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF information of other facts which are likely to mislead for want of 1 communication of that fact (emphasis added); or,
2 4. A promise, made without any intention of performing it.
3 Under Civil Code section defining deceit, intentional concealment of material fact is actionable fraud if there is fiduciary relationship giving rise to duty to disclose 4 it. Williams v. Wraxall (App. 1 Dist. 1995) 39 Cal.Rptr.2d 658, 33 Cal.App.4th 120, modified on denial of rehearing. Fraud 16 5 Fiduciary relationship is not indispensable element of fraud action, although 6 existence of such relationship gives rise to special obligations. Lewis v. LeBaron (App. 3 Dist. 1967) 61 Cal.Rptr. 903, 254 Cal.App.2d 270. Fraud 7 7
8
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- 78 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1
2 INTEREST
3 REPLY TO CALPERS ASSERTION 4 THAT INTEREST IS NOT PAYABLE
5 INTRODUCTION TO INTEREST 6
7 Respondent Frances and Clarence Alexander were denied their proper pension due to
8 CalPERS’ failed and inappropriate interpretation of GC 9359.10 and GC 9360.10. Respondents
9 seek payment in full of monies due, interest on wrongfully withheld payments, interest at
10 CalPERS “net earnings rate’ on accrued but unpaid monthly benefits under GC 21499, and any
11 and all other remedies available .
12 The California Supreme Court in Currie v. Worker’s Compensation Appeals Board 13 (2001) 24 Cal 4th 1109 and the California Appellate Court in Austin v. Board of Retirement of 14 Los Angeles County Employees Retirement Association (1998) 209 Cal. App. 3d 1528, hold that 15 administrative awards of retroactive pension benefits must include interest under Civil Code 16 Section 3287. These cases express controlling authority in this matter. Further Government Code 17 section 20160, vests CalPERS with authority to pay interest on retroactive retirement benefits. 18 In Alexander, CalPERS’ ““EXHIBIT A”” and Respondent’s “Exhibit 120” 19
20 generally agree (1) an interest rate of seven percent (7%) per California Constitution,
21 Article 15, Section 1 Usury is due on monies payable; and (2) that CalPERS has incurred an
22 interest liability.
23 CalPERS’ ““EXHIBIT A”” and Respondent’s “Exhibit 120” generally agree that as
24 of December 2005 about $6,425,000 is due to the Alexanders if interest is only charged at 25 7%.
- 79 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Specifically, CalPERS’ Scenario G2 of their ““EXHIBIT A”” applies interest at 7% 1 on the underpayment starting June 1979. CalPERS’ Scenario G2 of their ““EXHIBIT A”” 2
3 yields a total of principal and interest payable to Alexander of $6,425,066 as of December
4 2005.
5 In “Exhibit 120”, Respondent presents the same information slightly differently
6 under 2 Schedules that cover different time periods. Specifically in “Exhibit 120”,
7 Respondent’s Schedule 3.2 ($3,608,936) covers the period of June 1979 to February 1998.
8 Respondent’s Schedule 4.2 ($2,815, 917) coves the period of March 1998 to the December 9 2005. Both of these Schedules apply interest at 7% on the underpayment. Adding 10 Respondent’s Schedule 3.2 ($3,608,936) and Schedule 4.2 ($2,815, 917) to cover the whole 11 period of June 1979 to Dec 2005, the result is $6,424,907 in principal and interest payable 12 to Alexander. 13 Comparing “Exhibit 120” with ““EXHIBIT A””, Respondent and CalPERS’ 14 estimates differ by $159 or about 0.002%. CalPERS expert Alan Milligan admitted that this is 15
16 not a statistically significant difference that is likely a result of rounding.
17 However, Respondent believe that “penalty interest” pursuant to GC 21499 is payable on
18 Alexander’s accrued but unpaid monthly benefit that was outstanding but unpaid at March 1998.
19 In that case, the effective interest rate after Feb 1998 is greater than 7%. The penalty interest
20 issue is presented in a separate Brief filed simultaneously. 21 Respondent also seeks interest on the unpaid amounts to the later of (i) the current 22 Month(March 2006), or (ii) when payment is actually made. 23
24 I. STATEMENT OF FACTS REALTED TO INTEREST 25
- 80 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF CalPERS wrongly withheld the pension benefits due Clarence and Frances Alexander, 1 and now represented by the Alexander Family Trust. As a result of the wrongful 2
3 withholding, interest is payable on the amounts due.
4 Subsequent to the death of Clarence Alexander in Feb 1998 and then Frances Alexander, 5 interest at the “penalty interest” rate of Govt Code 21499 is due on the lump sum payable 6 and on the underpayment of the survivor benefit due. 7
8 Recently ALJ Anne Sarli ruled on a similar interest issue. EXHIBIT 130.
9 LAW OF INTEREST -OVERVIEW 10
11 The California Supreme Court in Currie v. Worker’s Compensation Appeals Board 12 (2001) 24 Cal 4th 1109 and the California Appellate Court in Austin v. Board of Retirement of 13 Los Angeles County Employees Retirement Association (1998) 209 Cal. App. 3d 1528, hold that 14 administrative awards of retroactive pension benefits must include interest under Civil Code 15 Section 3287. These cases express controlling authority in this matter. Further Government Code 16 section 20160, vests CalPERS with authority to pay interest on retroactive retirement benefits. 17
18
19 CURRIE AWARDED INTEREST PURSUANT TO CC 3287
20 When an agency tried improperly to not pay interest, The Court in Currie v. Workers'
21 Comp. Appeals Bd. 24 Cal.4th 1109, 104 Cal.Rptr.2d 392 Cal. 2001 reasoned:
22 Civil Code Section 3287 Petitioner and an amicus curiae, the California Applicants' Attorneys 23 Association, rely on Civil Code section 3287, subdivision (a) as authority for the 24 award of prejudgment interest. That statute provides, in pertinent part: "Every person who is entitled to recover damages certain, or capable of being made 25 certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day ...." For
- 81 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF reasons given below, we agree that Civil Code section 3287, subdivision (a) 1 applies to backpay awards made under Labor Code section 132a.
2 "Amounts recoverable as wrongfully withheld payments of salary or pensions are damages within the meaning of [Civil Code section 3287, subdivision (a)]. 3 [Citations.] Interest is recoverable on each salary or pension payment from the 4 date it fell due. [Citation.]" ( Olson v. Cory (1983) 35 Cal.3d 390, 402 [197 Cal.Rptr. 843, 673 P.2d 720]; see also Sanders v. City of Los Angeles (1970) 3 5 Cal.3d 252, 262 [90 Cal.Rptr. 169, 475 P.2d 201] ["action to recover retroactive pay increases is an action for damages within the meaning of section 3287 of the 6 Civil Code"].) As we explained in Mass v. Board of Education (1964) 61 Cal.2d 612 [39 Cal.Rptr. 739, 394 P.2d 579], involving a wrongfully suspended public 7 schoolteacher, once the obligation to pay retroactive wages is established, interest under Civil Code section 3287 properly accompanies reinstatement and a 8 backpay award in order to make the employee whole: "Each salary payment in the instant case accrued on a date certain. Unless the suspension itself can be 9 sustained and the board thus relieved of any obligation whatsoever, the salary 10 payments became vested as of the dates they accrued. If plaintiff had not been wrongfully suspended, he would have obtained the benefit of the moneys paid as 11 of those dates; he has thus lost the natural growth and productivity of the withheld salary in the form of interest." (Mass v. Board of Education, supra , at 12 p. 625.) Awards of backpay generally, then, are damages for purposes of Civil Code section 3287. We still must ask, however, whether the statute applies to an 13 award made by an administrative agency, here the WCAB, and whether anything in Labor Code section 132a was intended to preclude such interest. 14 Civil Code section 3287 has frequently been applied to administrative agencies' 15 retroactive awards of government assistance, wages, or retirement benefits, whether the awards were made initially by the agency or ordered by writ of 16 mandate by a court. (See, e.g., Tripp v. Swoap (1976) 17 Cal.3d 671, 675, 678- 17 685 [131 Cal.Rptr. 789, 552 P.2d 749] [state agency properly ordered to pay applicant wrongfully denied welfare benefits retroactively, *1116 with interest 18 from date they should have begun]; San Diego County Deputy Sheriffs Assn. v. San Diego County Civil Service Com. (1998) 68 Cal.App.4th 1084, 1086 [80 19 Cal.Rptr.2d 712] [under Civ. Code, § 3287, "when an administrative agency determines an employee's employment was wrongfully terminated, and 20 reinstates the employee's employment with backpay, the agency must include interest in the award of wrongfully withheld backpay"]; Goldfarb v. Civil 21 Service Com. (1990) 225 Cal.App.3d 633, 635- 637 [275 Cal.Rptr. 284] [civil service commission must pay interest, under Civ. Code, § 3287, on backpay 22 awarded to wrongfully demoted county employee]; Austin v. Board of Retirement (1989) 209 Cal.App.3d 1528, 1531- 1534 [258 Cal.Rptr. 106] 23 [county retirement board was properly ordered to award retroactive retirement 24 benefits with interest from last day of service].) [FN3] Backpay awarded by an administrative agency, therefore, may be considered damages for purposes of 25 Civil Code section 3287's mandate of interest.
- 82 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF FN3 As these cases indicate, and contrary to the dissent's apparent assumption 1 (see dis. opn., post, at p. 1120), the terms "benefits" and "damages" are not mutually exclusive. Welfare and retirement payments, for example, can be 2 referred to as benefits or, when awarded in relief of a legal claim, as damages. 3 "Damages," for purposes of Civil Code section 3287, are simply the monetary relief a person is entitled to recover in "compensation" for "detriment from the 4 unlawful act or omission of another." (Civ. Code, § 3281.)
5 WCAB awards of prejudgment interest under Civil Code section 3287 are 6 consistent with both the letter and the spirit of Labor Code section 132a. Nothing in section 132a expressly or impliedly precludes such an award. Indeed, the 7 statute's authorization of "reimbursement for lost wages" could reasonably be understood as impliedly authorizing accompanying interest, since without such 8 interest the employee will not be fully reimbursed for the value of the lost 9 wages. (Mass v. Board of Education, supra, 61 Cal.2d at p. 625.) The lack of express authorization for interest in section 132a is not significant. "Such a 10 provision would be redundant, as the Legislature provided elsewhere, and generally, in Civil Code section 3287 ..., for the recovery of interest ..., the right 11 to recover which is vested in the claimant on a particular day." (Austin v. Board of Retirement, supra, 209 Cal.App.3d at p. 1532; accord, Goldfarb v. Civil 12 Service Com., supra, 225 Cal.App.3d at p. 637.)
13 As to spirit, we observe that Labor Code section 132a itself declares it is the "policy of this state that there should not be discrimination against workers who 14 are injured in the course and scope of their employment." Adhering to that statement of legislative policy, we have construed the statute as serving, in part, 15 "a remedial function, by providing some compensation to the aggrieved worker 16 for discrimination incurred as the result of his injury." (*1117 Judson Steel Corp. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 658, 668 [150 Cal.Rptr. 17 250, 586 P.2d 564]; see also Dyer v. Workers' Comp. Appeals Bd. (1994) 22 Cal.App.4th 1376, 1385 [28 Cal.Rptr.2d 30] [concluding § 132a's "provision for 18 reimbursement is remedial in character"].) The Legislature clearly intended that employee victims of discrimination would be made whole at least to the extent 19 of their lost wages. Within that limit, "the Legislature left application of the provision for reimbursement to the broad equitable discretion of the WCAB." 20 (Dyer v. Workers' Comp. Appeals Bd., supra , at p. 1385.) An award of interest under Civil Code section 3287 is consistent with this remedial purpose. Indeed, 21 as we have already noted, without prejudgment interest the backpay remedy may 22 lose a significant portion of its value, and the employee left less than fully "reimburse[d]" (§ 132a, par. (1)) for his or her lost wages. 23 Because the WCAB is expressly authorized to award "reimbursement for lost 24 wages" under Labor Code section 132a, and because the inclusion of prejudgment interest in such a backpay award is mandated by Civil Code section 25 3287, inclusion of interest in the backpay award does not violate the principle that an administrative agency cannot create a remedy the Legislature has withheld. (See Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43
- 83 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Cal.3d 1379, 1389 [241 Cal.Rptr. 67, 743 P.2d 1323].) Contrary to the warning 1 LACMTA tries to sound, our decision here, recognizing that the WCAB must sometimes include prejudgment interest in its backpay awards under section 2 132a, will not open the door to WCAB awards of punitive damages or damages 3 for emotional distress. That prejudgment interest may be awarded to ensure the employee victimized by discrimination receives full "reimbursement" for 4 backpay, undiminished in value by the employer's failure to pay the wages at the times due, does not suggest the WCAB has the authority to award damages of 5 types not mentioned in section 132a and generally reserved to the judicial power. (See Walnut Creek Manor v. Fair Employment & Housing Com. (1991) 54 6 Cal.3d 245, 262 [284 Cal.Rptr. 718, 814 P.2d 704] [distinguishing between " 'restitutive' " damages such as backpay, which are commonly and permissibly 7 placed within the statutory authority of administrative agencies, and "nonquantifiable compensatory" and punitive damages, which are ordinarily and 8 traditionally reserved to the courts]; see also Cortez v. Purolator Air Filtration 9 Products Co. (2000) 23 Cal.4th 163, 177 [96 Cal.Rptr.2d 518, 999 P.2d 706] [although included as damages under the Civil Code, backpay is also an 10 authorized equitable remedy for illegal withholding of wages under the unfair competition law].) 11 Finally, respondent LACMTA contends this court's decision in American 12 Federation of Labor v. Unemployment Ins. Appeals Bd. (1996) 13 Cal.4th 1017 [56 Cal.Rptr.2d 109, 920 P.2d 1314] (AFL) indicates the WCAB may not award 13 prejudgment interest on backpay awards. We disagree. AFL did *1118 not decide or discuss any question regarding the statutory authority of the WCAB; it 14 decided only the "narrow question" ( id. at p. 1021) of whether an administrative law judge acting on behalf of the Unemployment Insurance Appeals Board may 15 award interest on unemployment benefits previously denied by the Employment 16 Development Department. As we have just seen, inclusion of Civil Code section 3287 interest in backpay awards under Labor Code section 132a is within the 17 WCAB's statutory authority to ensure full reimbursement of lost wages to employees discriminatorily denied payment at the time the wages were due. 18 AFL, concerned as it was with the very different statutory scheme governing unemployment insurance benefits, is not apposite on this central point. 19 In holding interest was not authorized either under the unemployment insurance 20 laws or under Civil Code section 3287, the AFL majority emphasized that certain delays were inherent in the administrative process, but concluded these delays 21 "are not ... tantamount to a 'wrongful withholding' of benefits giving rise to a 22 right to section 3287(a) prejudgment interest once the Board rules in favor of the claimant." (AFL, supra, 13 Cal.4th at p. 1026.) Thus, "[t]he central theme of 23 AFL ... is that interest is not available absent an agency decision or action which has resulted in wrongful withholding of, and corresponding delay in receiving, 24 benefits to which the claimant is entitled. (See Weber v. Board of Retirement (1998) 62 Cal.App.4th 1440, 1450 [73 Cal.Rptr.2d 769] [73 Cal.Rptr.2d 769].) 25 The AFL court extensively explained that the unemployment insurance scheme contemplates several steps and inherently involves some minimal delay before there is a determination of eligibility for the benefit.... Accordingly, when a
- 84 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF claimant is found entitled to benefits at one of the administrative levels, there has 1 been no wrongful delay or action in receiving benefits on which to predicate an award of prejudgment interest by the agency. (AFL, supra, 13 Cal.4th at p. 2 1037.)" (San Diego County Deputy Sheriffs Assn. v. San Diego County Civil 3 Service Com., supra, 68 Cal.App.4th at pp. 1094-1095, fn. omitted.) Here we are concerned not with an inherent administrative delay in providing 4 government benefits, but with wages withheld from an employee in violation of Labor Code section 132a. The WCAB determined this legal violation began in 5 December 1992, when petitioner should have been, but was not, reinstated to his previous position. The wages wrongfully withheld from that point on, until 6 reinstatement and backpay were ordered in June 1997, came due on the dates they would have been paid had petitioner been reinstated. (Mass v. Board of 7 Education, supra, 61 Cal.2d at p. 625.) Petitioner seeks interest under Civil Code section 3287, not to make up for the delay inherent in an administrative process, 8 as in AFL, supra, *1119 13 Cal.4th 1017, but to make up for the lost use of his 9 wages wrongfully withheld between 1992 and 1997. Currie v. Workers' Comp. Appeals Bd.24 Cal.4th 1109, 1119 104 Cal.Rptr.2d 392 Cal. 2001. 10 AUSTIN COURT AWARDED INTEREST 11 The Austin Court at Austin v. Board of Retirement 209 Cal.App.3d 1528, 258 Cal.Rptr. 12 106 Cal.App.2.Dist.,1989. court ruled: 13 The question whether Austin is entitled to interest from his last day of service on 14 the retroactive portion of his award of retirement benefits is one of law, concerning which we exercise our independent judgment. ( Estate of Madison (1945) 26 Cal.2d 15 453, 456 [159 P.2d 630].)
16 Pertinent to our discussion is subdivision (a) of Civil Code section 3287: "Every person who is entitled to recover damages certain, or capable of *1532 being made 17 certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except 18 during such time as the debtor is prevented by law, or by the act of the creditor from 19 paying the debt. This section is applicable to recovery of damages and interest from any such debtor, including the state or any county, city, city and county, municipal 20 corporation, public district, public agency, or any political subdivision of the state." (3) "Amounts recoverable as wrongfully withheld payments of salary or pensions 21 are damages within the meaning of these provisions. [Citations.] Interest is recoverable on each salary or pension payment from the date it fell due. [Citation.]" 22 ( Olson v. Cory (1983) 35 Cal.3d 390, 402 [197 Cal.Rptr. 843, 673 P.2d 720].)
23 (1b) The Board argues that had the Legislature intended to provide for the recovery of interest on disability pension payments due an applicant prior to the date upon 24 which the Board denied such benefits, i.e., prior to completion of the administrative process, it would have so provided in the statutes establishing a comprehensive 25 scheme for the determination and payment of disability retirement benefits. (Gov. Code, § 31720 et seq.) Such a provision would be redundant, as the Legislature
- 85 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF provided elsewhere, and generally, in Civil Code section 3287 (ante), for the 1 recovery of interest from a debtor, including "any county," on an award of damages certain, or capable of being made certain, the right to recover which is vested in the 2 claimant on a particular day. 3 (4) As the court stated in Tripp v. Swoap (1976) 17 Cal.3d 671 [131 Cal.Rptr. 789, 4 552 P.2d 749], with regard to the statutes relating to benefits under the former aid to the needy disabled program (former Welf. & Inst. Code, §§ 13500-13801), "Where 5 as here two codes are to be construed, they 'must be regarded as blending into each other and forming a single statute.' [Citation.] Accordingly, they 'must be read 6 together and so construed as to give effect, when possible, to all the provisions thereof.' [Citation.]" (17 Cal.3d at p. 679.) In Tripp, former Welfare & Institutions 7 Code section 10962 permitted an applicant or recipient of welfare benefits to seek judicial review of an adverse determination by the Director of the State Department 8 of Social Welfare, and to do so without paying a filing fee. The section also authorized recovery of attorney's fees and costs by a successful recipient. The court 9 stated, at page 679: "Appellate courts have construed section 10962 in part as 10 having as its purpose to ensure that aggrieved recipients have access to the judicial system to establish their statutory rights. [Citations.]" The Tripp court explained 11 that the Legislature's inclusion of the provisions concerning filing fees, attorney's fees, and costs "supports the *1533 view that the purpose of section 10962 is to 12 ensure access to judicial review, rather than to define the extent of a recipient's recovery. Interest, on the other hand, relates to the extent of recovery inasmuch as it 13 constitutes an element of damages. Under this construction the fact that the Legislature did not mention interest specifically does not mean that a successful 14 recipient is precluded from receiving it." ( Tripp v. Swoap, supra , 17 Cal.3d at pp. 680-681, fn. omitted.) The court went on to hold that interest was recoverable 15 pursuant to subdivision (a) of Civil Code section 3287.
16 (1c) Similarly, in the present case, there is nothing in the statutory scheme 17 governing disability pension benefits suggesting a legislative intent to preclude recovery of interest on damages awarded as prejudgment benefits from the date 18 such benefits became due.
19 The Board argues the Legislature provided a remedy in lieu of interest for delays in the administrative process by enacting Government Code section 31725.7, which 20 provides: "If a final determination is not made upon an application for disability retirement within 90 days after it is filed with the Board, the member may, if 21 eligible, apply for, and the Board in its discretion may grant, a service retirement allowance pending the determination of his entitlement to disability retirement." 22 (Italics added.) The argument is meritless. Many, many persons may be eligible for disability retirement benefits without also having reached the age and/or years of 23 service requisite to eligibility for service retirement benefits. In the present case 24 Austin, at age 36 with 12 years of service, would not become eligible for service retirement benefits for several years. (Gov. Code, §§ 31662.2, 31676.1, 31664.) 25 Government Code section 31725.7 does not reflect an intent on the part of the Legislature to provide a remedy in lieu of that provided by Civil Code section 3287, subdivision (a).
- 86 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Finally, the Board contends Tripp does not apply, as the Board was prevented by 1 law from awarding benefits until the administrative appeal process was completed. Interestingly, in Mass v. Board of Education (1964) 61 Cal.2d 612 [39 Cal.Rptr. 2 739, 394 P.2d 579], the board of education employed a similar argument based on 3 another aspect of Civil Code section 3287, subdivision (a), claiming interest accrued only from the date when the board bore the legal duty to reinstate a 4 suspended teacher because until that time the "'right to recover' did not 'vest' in him (Civ. Code, § 3287) and until then he was legally suspended." ( Id., at p. 625.) The 5 court stated: "The Civil Code requires vesting, however, only in order to fix with sufficient certainty the time when the obligation accrues so that interest should not 6 be awarded on an amount before it is due. Each salary payment in the instant case accrued on a date certain. Unless the suspension itself can be sustained *1534 and 7 the board thus relieved of any obligation whatsoever, the salary payments became vested as of the dates they accrued. If plaintiff had not been wrongfully suspended, 8 he would have obtained the benefits of the moneys paid as of those dates; he has 9 thus lost the natural growth and productivity of the withheld salary in the form of interest." (Ibid.) 10 The Board's argument in the present case, logically concluded, would preclude 11 awards of interest pursuant to Civil Code section 3287 in all cases wherein governmental entities denied persons benefits to which they were entitled, contrary 12 to the specific language of the section providing that it is "applicable to recovery of damages and interest from any such debtor, including the state or any county, city, 13 city and county, municipal corporation, public district, public agency, or any political subdivision of the state." If Austin had not been wrongfully denied 14 disability retirement benefits, he would have obtained the benefits of the moneys paid as of the date of accrual of each payment. As the court stated in Tripp: "The 15 same public policy that favors the award of retroactive benefits, would appear to favor the award of prejudgment interest on such benefits." ( Tripp v. Swoap, supra , 16 17 Cal.3d 671, 683.) [FN1] 17 FN1 The Board points to a footnote in Tripp wherein the court stated it was not 18 deciding whether welfare recipients who were successful after an administrative appeal, rather than after judicial review, were entitled to interest on retroactive 19 awards. ( Tripp v. Swoap, supra , 17 Cal.3d 671, 685, fn. 14.) We are unable to perceive the relevance of this note to the 20 case before us, which involves prejudgment interest to which Austin is clearly entitled under Civil Code section 3287 and the decision in Tripp. Austin v. Board of 21 Retirement 209 Cal.App.3d 1528, 1534 258 Cal.Rptr. 106 Cal.App.2.Dist.,1989
22
23 ADDITIONAL AUTHORITIES
24 In addition to the Currie and Austin authorities, CalPERS owes interest on the monies due
25 and payable under several other decided cases. A case on point Olson v. Cory II (1983). Similar
- 87 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 to the Legislators’ Retirement System (LRS), in Olson v. Cory II involved pension in the Judicial
2 Retirement System (JRS). CalPERS administers both LRS and JRS..
3 In Olson v. Cory II , the court held that amounts recoverable as wrongfully withheld
4 payments of salary or pensions are "damages" within meaning of statute providing that every
5 person who is entitled to recover damages certain, or capable of being made certain by
6 calculation, and right to recover which is vested in him upon a particular date, is entitled also to
7 recover interest thereon from that day, and interest is recoverable on each salary or pension
8 payment from date it fell due. West's Ann.Cal.Civ.Code § 3287(a).
9 “Certainty” was present where uncertainty of amount due judges of courts of record and
10 judicial pensioners was either of two readily calculable amounts, which did not depend on any
11 factual uncertainty or dispute. West's Ann.Cal.Gov.Code § 68203; West's Ann.Cal.Civ.Code §
12 3287 (a)
13 The benefit became due monthly. The underpayment shall be calculated from the
14 difference of: [the amount that should have been paid but was not paid] less [the amount that
15 was paid]. The resulting amount [amount that should have been paid but was not paid] should
16 earn interest from the time that it was due.
17 State of California is subject to claims of interest under statute providing for recovery of
18 interest on damages certain.24 which vested upon a particular day. West's Ann.Cal.Civ.Code §
19 3287 (a).The court ruled that the plaintiffs are entitled to interest . ( Cal. Const., art. VI, § 1)
20 (Gov.Code, § 75000 et seq.)
21 INTEREST ON WRONGFULLY WITHHELD FUNDS: PREJUDGEMENT INTEREST 22
23
24
25 24 Fact that judicial pensions were payable entirely out of judges' retirement fund rather than out of state's general fund did not disentitle judicial pensioners to interest on increases on judicial pensions mandated by Olson v. Cory I ; disapproving Jorgensen v. Cranston , 211 Cal.App.2d 292, 27 Cal.Rptr. 297, Willens v. Cory , 53 Cal.App.3rd 104, 125 Cal.Rptr. 670, and Gibbons & Reed Co. v. Dept. of Motor Vehicles , 220 Cal.App.2d 277, 33 Cal.Rptr. 688
- 88 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF The law is clear that prejudgment interest is owed on liquidated or ascertainable 1 amounts of monies that were wrongfully withheld. “Wrongfully withheld” is defined as 2
3 retaining by one person an amount of money that was properly due and should have been
4 paid to someone else.
5 Where bank, claiming banker's lien, improperly withheld money, the 6 bank was liable for interest from date money was improperly withheld. Commercial Discount Co. v. Bank of America Nat. Trust & 7 Savings Ass'n (App. 4 Dist. 1943) 61 Cal.App.2d 721, 143 P.2d 484.
8
9 Under administrative scheme in which public employer's wrongful action and withholding of payment was the triggering event for 10 commencing the administrative review process, the administrative law judge (ALJ), like the superior court in the mandamus action 11 reviewing denial of unemployment benefits, reviews whether to uphold the wrongful action, as basis for award of prejudgment 12 interest. San Diego County Deputy Sheriffs Assn. v. San Diego County 13 Sheriffs Dept. (App. 4 Dist. 1998) 80 Cal.Rptr.2d 712, 68 Cal.App.4th 1084. 14
15
16 LAW OF INTEREST:WRONGFULLY WITHHELD RETIREMENT BENEFITS 17 A long line of case established that interest is due on underpaid retirement benefits. 18 Amounts recoverable as wrongfully withheld payments of salary or 19 pensions are "damages" within meaning of this section, and interest is recoverable on each salary or pension payment from date it fell due. Olson 20 v. Cory (1983) 197 Cal.Rptr. 843, 35 Cal.3d 390, 673 P.2d 720.
21 Action to recover retroactive pay increases is action for damages within meaning of this section providing that person who is entitled to recover 22 damages certain, or capable of being made certain by calculation, and right to recover which is vested in him upon particular day, is entitled also 23 to recover interest thereon from that day. Sanders v. City of Los Angeles (1970) 90 Cal.Rptr. 169, 3 Cal.3d 252, 475 P.2d 201. 24
25 Teacher who had tenure and who was entitled to past salary after having been ordered reinstated following his suspension by local board of education would be entitled to prejudgment interest as an element of
- 89 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF damages on each salary payment as it accrued from date of accrual to 1 entry of judgment, and such interest could be obtained in teacher's mandamus proceeding against board and others for reinstatement and back 2 pay. Mass v. Board of Ed. of San Francisco Unified School Dist. (1964) 3 39 Cal.Rptr. 739, 61 Cal.2d 612, 394 P.2d 579.
4 MISTAKE STATUTE 20160
5 In addition, the mistake statute GC 20160(e) provides explicit and sufficient authority
6 to pay interest . GC 20160(e) explicitly seeks to make the Respondent ‘whole’ over “time”. GC
7 indicates that CalPERS benefits should be “adjusted to be the same that they would have been if
8 the act that would have been taken, but for the error or omission, was taken at the proper time”.
9 The specific inclusion of the word “time” in GC 21060(e) contemplates the payment of 10 interest, because interest is defined as a charge for the use of money over time. 11 Since Respondent did not have the use of the money in the past, the additional payment 12 of interest on the sum payable would make Respondent whole. It should also be remembered that 13 CalPERS earned significant interest on these wrongfully withheld sums over time. CalPERS 14 earned interest well in excess of the Constitutional interest rate. 15
16 Government Code §20160(e) reads: GC § 20160 (e) Corrections of errors or omissions pursuant to this section shall be 17 such that the status, rights, and obligations of all parties described in subdivisions 18 (a) and (b) are adjusted to be the same that they would have been if the act that would have been taken, but for the error or omission, was taken at the proper time. 19 However, notwithstanding any of the other provisions of this section, corrections made pursuant to this section shall adjust the status, rights, and obligations of all 20 parties described in subdivisions (a) and (b) as of the time that the correction actually takes place if the board finds any of the following: 21 (1) That the correction cannot be performed in a retroactive manner. (2) That even if the correction can be performed in a retroactive manner, the status, 22 rights, and obligations of all of the parties described in subdivisions (a) and (b) cannot be adjusted to be the same that they would have been if the error or 23 omission had not occurred. 24 (3) That the purposes of this part will not be effectuated if the correction is performed in a retroactive manner. 25
- 90 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 GC20160 was clearly intended to retroactively correct the mistake such that the
2 beneficiary was made whole and not negatively affect by the mistake. Paying interest on the
3 sums of money that were due to be paid but withheld will make the Respondents whole.
4 The California Constitution charges that the "board's duty to its participants ... shall take
5 precedence over any other duty." (Cal. Const., art. XVI, § 17(b).) The PERS laws are to be
6 interpreted in favor of the employee or beneficiary when a semantic ambiguity is presented by
7 the statute at issue. ( City of Sacramento v. Public Employees Retirement System (1991) 229
8 Cal.App.3d 1470, 1488, 280 Cal.Rptr. 847. The Legislature has expressed a preference for retroactive corrections. Section 20160, 9 quoted above, provides the Board "shall correct all actions taken as a result of errors or omissions of ... any contracting agency, or this system." (Id., subd. (b); see Rodie v. Board of 10 Administration (1981) 115 Cal.App.3d 559, 566, 171 Cal.Rptr. 433 [interpreting former § 20180 11 broadly].)
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- 91 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF PENALTY INTEREST 1 REPLY TO CALPERS ASSERTION THAT 2 NO PENALTY INTEREST IS PAYABLE 3
4 I. STATEMENT OF FACTS RELATED TO PENALTY ITNEREST
5 CalPERS wrongly withheld the pension benefits due Clarence and Frances Alexander,
6 and now represented by the Alexander Family Trust.
7 Since June 1979, Respondent Frances and Clarence Alexander were denied their proper 8 pension due to CalPERS’ failed and inappropriate interpretation of GC 9359.10 and GC 9360.10. 9 Respondents seek payment in full of monies due, interest on wrongfully withheld payments, 10 interest at CalPERS “net earnings rate’ on accrued but unpaid monthly benefits under GC 21499, 11
12 and any and all other remedies available .
13 For the period after the death of Clarence Alexander in Feb 1998 , interest at the
14 “penalty interest” rate of Govt Code 21499 is due on the accrued but unpaid monthly
15 allowance that aggregated into a lump sum payable but CalPERS has not yet paid.
16 The California Supreme Court in Currie v. Worker’s Compensation Appeals Board 17 (2001) 24 Cal 4th 1109 and the California Appellate Court in Austin v. Board of Retirement of 18
19 Los Angeles County Employees Retirement Association (1998) 209 Cal. App. 3d 1528, hold that
20 administrative awards of retroactive pension benefits must include interest under Civil Code
21 Section 3287. These cases express controlling authority in this matter. Further Government Code
22 section 20160, vests CalPERS with authority to pay interest on retroactive retirement benefits.
23 In Alexander, CalPERS’ ““EXHIBIT A”” and Respondent’s “Exhibit 120” generally
24 agree (1) an interest rate of seven percent (7%) per California Constitution, Article 15, Section 1 25 Usury is due on monies payable; and (2) that CalPERS has incurred an interest liability.
- 92 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF CalPERS’ ““EXHIBIT A”” and Respondent’s “Exhibit 120” generally agree that as of 1 December 2005 about $6,425,000 is due to the Alexanders if interest is only charged at 7%. 2
3 Specifically, CalPERS’ Scenario G2 of their ““EXHIBIT A”” applies interest at 7% on
4 the underpayment starting June 1979. CalPERS’ Scenario G2 of their ““EXHIBIT A”” yields a
5 total of principal and interest payable to Alexander of $6,425,066 as of December 2005.
6 In “Exhibit 120”, Respondent presents the same information slightly differently under 2
7 Schedules that cover different time periods. Specifically in “Exhibit 120”, Respondent’s
8 Schedule 3.2 ($3,608,936) covers the period of June 1979 to February 1998. Respondent’s 9 Schedule 4.2 ($2,815, 917) coves the period of March 1998 to the December 2005. Both of these 10 Schedules apply interest at 7% on the underpayment. Adding Respondent’s Schedule 3.2 11 ($3,608,936) and Schedule 4.2 ($2,815, 917) to cover the whole period of June 1979 to Dec 12 2005, the result is $6,424,907 in principal and interest payable to Alexander. 13 Comparing “Exhibit 120” with ““EXHIBIT A””, Respondent and CalPERS’ estimates 14 differ by $159 or about 0.002%. CalPERS expert Alan Milligan admitted that this is not a 15
16 statistically significant difference that is likely a result of rounding.
17 However, Respondent believe that “penalty interest” pursuant to GC 21499 is
18 payable on Alexander’s accrued but unpaid monthly benefit that was outstanding but
19 unpaid at March 1998. In that case, the effective interest rate after Feb 1998 is greater
20 than 7%. The penalty interest issue is presented in this Brief. 21 CalPERS does not add penalty interest on the theory that the Legislators Retirement Law 22 does not incorporate that portion of the Public Employees Retirement Law. Although there is no 23 section in LRL that is incompatible with GC 21499, CalPERS has chosen not to add penalty 24 interest. Instead, CalPERS in effect categorizes the “ accrued but unpaid monthly allowance” as 25
- 93 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF a contribution to the fund that earns interest at the “net earnings rate” of the LRL fund. See 1 Scenarios B3,C3,D3,E3,F3 and G3 in CalPERS “EXHIBIT A”. GC 9353.3. 2
3 However, the LRL fund suffered several losses in the years between 1998 and 2005, such
4 that the LRL fund returns (without adjustments for a floor interest rate) fall below 7% percent. In
5 essence, under CalPERS scenarios, Alexander is penalized by earning a less than Constitutional
6 rate of 7% if this theory is applied.
7 On the other hand, Respondent argues that GC 21499 is incorporated into LRL ( and
8 applicable to the Alexander matter) because there is no code section in LRL that is inconsistent 9 with GC 21499. The LRL code incorporates all of the PERL that is not inconsistent with the 10 benefits or terms in LRL. GC 9353. As such, GC 21499 is properly applicable in the Alexander 11 matter. 12 Harvey Robinson, pension expert and CalPERS former employee in both LRS and death 13 benefits, indicated that GC 21499 applies to the underpayment to Clarence Alexander. Robinson 14 read the current language of GC 21499, realized that GC21499 was in the Death Benefits 15
16 section, and testified that he thought that GC 21499 applied to provide interest purusnat to GC
17 21499 (i.e. at the greater of the net earnings rate, etc. ) to the underpayment to the Alexanders.
18 Even CalPERS expert Alan Milligan described the amount due that Alexanders as “an accrued
19 but unpaid monthly allowance” that would have been described and incorporated into the
20 definition of GC 21211.6, that originally supplied “penalty interest” on unpaid amounts. GC 21 21211.6 was re-chaptered without a change in meaning as GC 21499. 22 Government Code 21499 was originally enacted as GC 21211.6 in 1988. The Analysis 23 of SB 2123(1988), attached EXHIBIT 112 reads: 24 “Section 9. Adds Section 21211.6 to provide that where PERS is 25 making a statutory death payment in the following circumstances: (1) A lump sum is being paid to a statutory beneficiary;
- 94 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF (2) A lump sum is being paid where the estate is designate as 1 beneficiary; or (3) A pro rata payment or a monthly allowance has accrued but 2 remains unpaid at the time of the annuitant’s death (emphasis 3 added),
4 and payment is not made within 45 days of all necessary information being received, then interest shall be applied and 5 payable at the net earnings rate until the benefit is paid.
6 The Legislature re-chaptered the Bill into Section GC 21499 in 1995. Disposition Table 7 attached a Exhibit 131). 8
9 The Legislative intent of SB 541, (Hughes) evidenced in the Legislative Counsel’s
10 Digest filed with the Secretary of State August 4, 1995 read
11 The bill would reorganize those provisions and would state the intent of the 12 Legislature that the bill would not make any substantive change in the law. It would also provide that any act enacted in 1995 at the 1995-96 Regular 13 Session of the Legislature shall prevail over this bill if there would otherwise be a conflict. (Emphasis added) 14
15 In 1995, GC 21499 was adopted as follows.
16 GC 21499. (a) Notwithstanding Section 21498, when either an initial payment of a preretirement or postretirement death allowance or a 17 preretirement or postretirement lump-sum benefit is payable in an amount of ten dollars ($10) or more, it shall be authorized to the 18 Controller within 45 days of receipt by this system of all the necessary information, including the return of warrants issued or any 19 overpayment outstanding after the date of the death of the annuitant. 20 (b) If any payment is not made within that time limitation, the payment shall also include interest at the net earnings rate 21 (including capital gains and losses) in effect at the time the 22 payment is made, for time following the expiration of that time limitation. 23 (c) This system shall submit, annually, as part of the report required by Section 20237, to the Legislature and the Governor a 24 summary of the experience of this system in making payments pursuant to subdivision (b). 25
GC 21499 was amended to add a floor interest rate in 2003. The changes are in bold:
- 95 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF SEC. 29. Section 21499 of the Government Code is amended to read: 1 GOVT § 21499. (a) Notwithstanding Section 21498, when either an initial 2 payment of a preretirement or postretirement death allowance or a preretirement or postretirement lump-sum benefit is payable in an amount 3 of ten dollars ($10) or more, it shall be authorized to the Controller within 4 45 days of receipt by this system of all the necessary information, including the return of warrants issued or any overpayment outstanding 5 after the date of the death of the annuitant. (b) If any payment is not made within that time limitation, the payment 6 shall also include interest at the greater of the interest crediting rate specified in Section 20178 or the net earnings rate (including capital 7 gains and losses) in effect at the time the payment is made, for time following the expiration of that time limitation. 8 (c) The system shall submit, annually, as part of the report required by Section 20237, to the Legislature and the Governor a summary of the 9 experience of the system in making payments pursuant to subdivision (b). 10 Respondent argues that it would be inappropriate to credit an interest rate of less than the 11 Constitutional interest rate of 7 percent. California Constitution Article 15 Section 1 Usury. 12 In Respondent’s “Exhibit 120”, Respondent applies interest at the greater of (i) seven 13 percent (7%) or (ii) the “net earnings rate” of the PERS fund to the lump sum payable that was 14 outstanding on Feb 1998. Interest is charged at these rates for the period of March 1998 to 15 December 2005 ( and also to the present). The “net earnings rate” applied is that supplied by 16
17 CalPERS counsel in EXHIBIT 115.
18 EXHIBIT 115 is titled “Public Employees Retirement System History of Information of
19 System Interest Rates” supplied by CalPERS counsel under a Public Records Act request on
20 September 30, 2005. CalPERS counsel never supplied LRS fund numbers, which would likely
21 not be directly applicable. As GC 21499 is incorporated from the PERL, it is appropriate to apply 22 the PERS “net earnings rate” to the underpayment outstanding. 23 In particular EXHIBIT 115 illustrates the following: 24 Year “Earnings Rate After Admin. Costs” 25
- 96 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1997-1998 19.52 [footnote 12 in original]25 1 1998-1999 12.50 1999-2000 10.50 2 2000-2001 -7.20 3 2001-2002 -6.10 2002-2003 3.70 4 2003-2004 16.60
5 There is no subsequent data. 6 Since the rates for years 2000-2003 are below seven percent, Respondent has used a floor 7 of seven percent in those years. 8
9 On EXHIBIT 120, Schedule 3.4 illustrates the application of GC 21499. Schedule 3.4
10 indicates that $4,666,697 is due Respondent for monies withheld for the period of June
11 1979 to Feb 1998, with interest after March 1998 applied at the greater of seven percent or
12 the “net earnings rate” of CalPERS.
13 Applying GC 21499 only to the lump sum payable to the Alexanders on Feb 1998
14 provides approximately one million dollars more in interest. 15 Specifically in “EXHIBIT 120”, Schedule 3.2 applies only seven percent to the lump 16 sum outstanding at Feb 1998 and yields $3,608,936. Applying the greater of seven percent 17 or the “net earnings rate” (AKA “Earnings Rate After Admin. Costs”) to the lump sum 18 outstanding on Feb 1998, provides $4,666,697 pursuant to Schedule 3.4 of EXHIBIT 120. 19 The accretion due to GC 21499 is $1,057,761. 20 Respondent believe that the Alexanders are entitled to: 21
22 (vi) interest at 7% on the underpayment from June 1979 to Feb 1998 ;
23
24
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25 Original Footnote 12 read: “(12) Used published Investment Office rates.”
- 97 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF (vii) interest at the greater of PERS net earnings rate or 7% per GC 21499 on 1 the accrued but unpaid lump sum outstanding and not paid to the 2
3 Alexanders at Feb 1998 ( $4,666,697 per Schedule 3.4);
4 (viii) interest at seven percent for the underpayment of Frances Alexander’s
5 allowance from March 1998 to her death ($2,815, 971).
6 The total for the period of June 1979 to the Dec 2005 is $7,482,668 through Dec
7 2005.
8 As of March 2006, that amount has increased to $7,610,309. 9 Respondent also seeks interest on the unpaid amounts to the later of (i) the current 10 Month(March 2006), or (ii) when payment is actually made. 11
12
13 LAW OF PENALTY INTEREST -OVERVIEW
14 The California Supreme Court in Currie v. Worker’s Compensation Appeals Board 15 (2001) 24 Cal 4th 1109 and the California Appellate Court in Austin v. Board of Retirement of 16
17 Los Angeles County Employees Retirement Association (1998) 209 Cal. App. 3d 1528, hold that
18 administrative awards of retroactive pension benefits must include interest under Civil Code
19 Section 3287. These cases express controlling authority in this matter. Further Government Code
20 section 20160, vests CalPERS with authority to pay interest on retroactive retirement benefits.
21 GC 21499 requires interest to be paid when CalPERS fails to timely pay a benefit.
22 LAW OF GC 21499 23
24 “ Penalty Interest” of GOVERNMENT CODE 21499 25
- 98 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Calling for a higher than statutory interest rate on unpaid postretirement lump sum
2 payables, Government Code 21499 applies to any accrued but unpaid benefit remaining at
3 death. The interest accrues until the amount is paid. After Clarence’s death, a large underpaid
4 benefit was due and payable to Frances as a death benefit. Accumulating into a lump sum, the
5 monthly benefit, interest, and other benefits due the original retiree, and then subsequent to his
6 death, to the widow, deserve to be increased for the penalty interest sections of GC 21499. Govt Code 21499. (a) Notwithstanding Section 21498, when either an initial 7 payment of a preretirement or postretirement death allowance or a preretirement or postretirement lump-sum benefit is payable in an 8 amount of ten dollars ($10) or more, it shall be authorized to the 9 Controller within 45 days of receipt by this system of all the necessary information, including the return of warrants issued or any overpayment 10 outstanding after the date of the death of the annuitant. (b) If any payment is not made within that time limitation, the 11 payment shall also include interest at the greater of the interest crediting rate specified in Section 20178 or the net earnings rate (including capital 12 gains and losses) in effect at the time the payment is made, for time following the expiration of that time limitation. 13 (c) The system shall submit, annually, as part of the report required by Section 20237, to the Legislature and the Governor a summary of the 14 experience of the system in making payments pursuant to subdivision 15 (b). Emphasis added.
16 GC 21499 was originally enacted as GC 21211.6 pursuant to SB 2123 (Rogers), 1988.
17 Relevant legislative history of this section and the present GC 21499 is contained in Section 9 on
18 page 2 of the Bill Analysis of SB 2123(1988), attached EXHIBIT 112 19 More specifically the Section 9 of the attached Bill analysis reads:
20 “Section 9. Adds Section 21211.6 to provide that where PERS is making a statutory death payment in the following circumstances: 21 (4) A lump sum is being paid to a statutory beneficiary; (5) A lump sum is being paid where the estate is designate as 22 beneficiary; or (6) A pro rata payment or a monthly allowance has accrued but 23 remains unpaid at the time of the annuitant’s death (emphasis added), 24
25 and payment is not made within 45 days of all necessary information being received, then interest shall be applied and payable at the net earnings rate until the benefit is paid.
- 99 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1
2 The phrase “death payment” is not a statutory term nor a term of art. The term “death
3 payment” must be broader than the term of art “death Benefit”. The term “death payment”
4 obviously encompasses the underpayment to the Alexanders and other “accrued but unpaid
5 benefits”.
6 The Legislative History of SB 2123 in Exhibit 112 clearly and explicitly indicates that the
7 Legislature intended that any monthly allowance that has accrued but remains unpaid at the time
8 of the annuitant’s death shall receive penalty interest. GC 21499 applies now to both Clarence
9 and Frances Alexander in LRS. When CalPERS failed to pay the lump sum within the 45 day
10 period after the death of the retiree, the lump sum of all the monies due to be paid increased
11 pursuant to the penalty interest of GC 21499. The purpose of the GC21499 legislation was to encourage CalPERS to pay the 12 retirement benefits quickly in the survivor’s time of need. Death is difficult for the survivors. 13
14 The time after death is often difficult and uncertain time for the surviving family.
15 Specifically broad and encompassing both retirement and death benefits, the Bill
16 Analysis of SB 2123 dated 3/21/88 about PERS Death Benefits indicates in the Section 1 of the
17 Anaylsis that” States that it is the intent of the Legislature to pay retirement benefits quickly…”
18 EXHIBIT 112.
19 In the Bill Analysis of AB 67 of April 2003 which “clarifies various interest rate 20 provisions to ensure death benefit payments are not reduced when CalPERS’ net earningss rate is 21 less than zero”, the last sentence of Section 29 reads: “applying a negative [net earnings] 22 interest rate to late payments would reduce the survivor’s benefit , which defeats the purpose of 23 this statute.” EXHIBIT 132 attached. 24
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- 100 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Section 29 1 GC 21499 - Clarify Interest Rate. Specifies that the interest rate applied to 2 PERS; late payment of death benefits will be the greater of the interest 3 crediting rate specified in Section 20178 (currently set at six percent) or the net earnings rate in effect at the time the payment is made. 4 Under current law, initial payment of death benefits must be authorized to 5 the State Controller's office within 45 days of PERS' receipt of all necessary information. If payment is not made within the 45-day period, 6 interest at the net earnings rate in effect at the time the payment is made for time after the 45th day is included in the payment. The interest rate is 7 based on the previous fiscal year's net earnings rate. The language of this provision does not anticipate circumstances where PERS' net earnings rate 8 would be less than zero, as occurred for fiscal year 2000/01. Applying a 9 negative interest rate to late payments would reduce the survivor's benefit, which defeats the purpose of this statute. California Bill Analysis, A.B. 67 10 Sen., 4/10/2003
11 In other words, the intent of GC21499 is to increase the survivor’s benefit because the survivor 12 benefit was not paid within the 45 day limit. 13 Encouraging CalPERS to timely settle all of the remaining unpaid moneys in a lump 14 sum is a laudable goal. The Legislature correctly placed the burden on CalPERS to review the 15 account of the deceased member, determine if there is any money outstanding, and then timely 16 pay that outstanding moneys owed in a lump sum to the widow –beneficary. 17
18 In practice, CalPERS assumes that all benefits due and payable to a survivor or
19 beneficiary as a result of the death of a member is a “death benefit” payable to that survivor or
20 beneficiary.
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- 101 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1
2 BETTS CASE AND SUPREME COURT DECISION INTRODUCTION REGARDING BETTS CASE PRECEDENT 3 Respondent Frances and Clarence Alexander were denied their proper pension due to 4
5 CalPERS’ failed and inappropriate interpretation of GC 9359.10 and GC 9360.10. Respondents
6 seek payment in full of monies due, interest on wrongfully withheld payments, interest at
7 CalPERS “net earnings rate’ on accrued but unpaid monthly benefits under GC 21499, and any
8 and all other remedies available .
9 The Betts case serves as a direct controlling precedent.
10
11 I. STATEMENT OF FACTS RELATING BETTS CASE TO ALEXANDER
12 Bert Betts was Treasurer from about 1959 to 1967. He served 8 years. Betts’ last
13 salary in office as Treasurer was $21,499 per year in 1967. The Treasurer’s salary
14 remained at that level for the next 2 years.
15 Clarence Alexander retired in 1969. The salary of the Secretary of the Senate was 16 $22,680 in 1969. 17
18 The salary of the incumbent of Treasurer increased to $35,000 in 1969. After 1969,
19 the next increase in salary for the Treasurer occurred in January 1979. 20
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- 102 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Betts received a July 30, 1973 letter from CalPERS indicating in the second and third
2 sentences of paragraph 326 that he was entitled to the (i) salary of the incumbent and (ii) serial
3 COLAS with a 1954 base year. EXHIBIT 133 attached.
4 Similar to CalPERS’ actions in the Alexander matter, in an October 18, 1976 letter,
5 CalPERS denied Betts a pension based on the salary of the incumbent after his retirement. In
6 Betts, CalPERS argued that CalPERS re-interpreted a 1971 change in the law as limiting Betts’
7 base allowances to the last salary in office27. EXHIBIT 134 attached.
8 In Alexander, no reason was given at the time of the “freeze” in 1979-80. In fact,
9 CalPERS never informed Alexander that the pension was frozen.
10 In Betts, CalPERS always agreed and computed Betts’ pension on serial COLAS with a
11 base year of 1954 pursuant to GC 9360.9. The Betts calculation sheets illustrate the serial
12 COLAS are added to increases for increases in the salary of the incumbent. Specifically, the
13 Betts calculations sheets indicate a base pension based on the then current salary of $35,000 for
14 the incumbent Treasurer (which increased in 1969 after Betts left office in 1967).The page
15 marked “158” indicates COLAS of 58.2 percent in July 1973. EXHIBIT 135 attached. The page
16 marked “171” indicates COLAS of 103.3% in January 1976. EXHBIT 136 attached.
26 17 “Although the legislator’s law was amended in 1971 to limit the salary used in calculating benefits to that received by the member in office, it only applies to those first elected after the operative date of 1971 legislation. Consequently the allowance payable upon your retirement will be calculated upon the salary of the State Treasurer 18 at that time. It will also be adjusted whenever there is an increase in such salary after your retirement. The cost of living increase which I have noted is 58.2 percent will probably continue to run in your favor and will likely be 19 somewhat greater. Emory Moore, chief Benefit Division letter to Bert Betts of July 30, 1973. Marked EXHIBIT l, PAGE 157 and 157A of OAH file number N8989. 20 27 “We are sorry for an inconvenience this may have caused you. The computation of the basic allowance for a Constitutional Officer was changed by legislation enacted in 1974, Chapter 1 (AB7) Statutes of 1974 Second Extra 21 Session 1973-4 amend Government Code Section 9359.1 (b) to read:”
“The retirement allowance for a member all of whose credited service was rendered as an elective officer of 22 the state whose office is provided for by the Constitution other than a judge (and other than a Member of the Senate or Assembly) the sum of (1) an annual amount equal to five percent (5%) of the highest 23 compensation received by the officer while serving in such office, multiplied by the number of years of service with which the member is entitled to be credited at the time of his retirement, not to exceed eight 24 (8) years”.
25 Therefore using your highest salary while in office, $21,499, your lifetime allowance under Option 3 is $1,284.99. This amount will of course, be adjusted annually due to changes in the California Consumer Price Index.” Carl Blechinger Executive Officer of Legislators’ Retirement System to Bert Betts, Oct 18, 1976. EXHIBIT R, in OAH case Number N 8989, (1976-7) marked pages 172-173.
- 103 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 To this day, CalPERS still computes Betts’ pension on serial COLAS from 1954 pursuant
2 to GC 9360.9.
3 After CalPERS informed Betts in 1976 that CalPERS was freezing his pension contrary
4 to their previous assertions ( and contrary to law), Betts brought an action in the Office of
5 Administrative Law in 1976-7 to have CalPERS increase his pension for increases in the
6 incumbent ‘s salary and all COLAS since 1954. Betts prevailed at the OAH level. However, it
7 appears that the CalPERS board did not approve the pension. Betts appealed to the Court of
8 Appeals and then to the Supreme Court. In 1978, the Supreme Court decided the seminal Betts case. Although the statutory 9 amendment issue is not directly involved in Alexander (because the parties agree that 10
11 Alexander’s base allowance is based on the salary of the incumbent Secretary of the Senate) , the
12 Supreme Court in Betts considered the effect of amendments to LRL on the calculation of the
13 base salary of Bert Betts’ pension as Constitutional Officer under 9359.1.
14 The 1974 amendments to LRL were enacted after Betts ended his term of office but
15 before he retired. (Altogether differently, Alexander worked and retired as Secretary of the
16 Senate under the full benefits of GC9359.10) CalPERS raised the question whether Betts was 17 entitled to increases in his pension for both increases in the incumbent Treasurer salary under 18 9359.1 and for increase in the cost-of-living since retirement since 1954 under 9360.9. The court 19 granted Betts the higher benefits based on both increases in the incumbent Treasurer’s salary and 20 increases for serial COLAS since 1954 . 21 We fully recognize that the effect of our holding is that petitioner thereby 22 receives the benefit of a double increment of increase, a troubling result. 23 We can only observe that the Legislature must have intended to provide such benefits to constitutional officers serving between 1963 and 1974 24 because it left in effect both of the formulae during that 11-year period Betts, v. Board of Administration of the Public Employees' Retirement 25 System et al. 21 Cal.3d 859 at 867.
- 104 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF In 1979-80, CalPERS secretly froze Alexander’ pension, without informing him. After 1 about June 1979, CalPERS inappropriately failed to increase Alexander’s pension for increases 2
3 in the salary of the incumbent Secretary of the Senate.
4 After leaving the ‘double benefit’ formula in effect for LSOs for at least twelve (12)
5 years, the Legislature in 1981-2 amended the pension statute for future Legislative Statutory
6 officers GC 9359.10. At the same time as amending GC 9359.10 for future LSOs, the Legislature
7 expressly preserved the existing vested rights of Alexander and other retired LSOs to the ‘double
8 benefit’ formula . EXHIBITS 13-17. 9 However from about 1979 on, Alexander’s pension was secretly still not increased for 10 increases in the salary of the incumbent Secretary of the Senate. 11 From 1971 to 1978, the salary of the Treasurer was $35,000 each year. In 1982 the salary 12 of the Treasurer was $42,500. In 1982, the salary of the incumbent Secretary of the Senate was 13 $57,888. In other words, the Secretary of the Senate earned approximately 36% more than the 14 Treasurer in 1982. For most if not all of the time until the present, the Secretary of the 15
16 Senate earned more than the Treasurer. EXHIBIT 137 attached. Salary of Treasurer
17 In 1983, the salary of the Treasurer increased to $42,500. Betts received an increase in
18 his pension for both (i) an increases in the salary of the incumbent treasurer and (ii) for all
19 COLAS since 1954.
20 In 1985-6, The Legislature put Prop 57 on the ballot. Prop 57 limited increases in the 21 pension of Constitutional Officers. The1986 Constitutional Amendment limited the base 22 allowance of the pension payable to the Treasurer to the salary of the incumbent paid in 1986. 23 Although Constitutional Officer pensions are similar to Legislative Statutory Officer 24 pensions, Prop 57 did not include and did not limit LSO pensions. Existing LSO pensions for 25 Alexander, Driscoll, White and others were never limited. For example, the LSO pensions paid
- 105 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Driscoll and White increased for both increases in the salary of the incumbent LSO and all 1 COLAs since retirement up until at least 1998 when they agreed to settle under threat of further 2
3 litigation from CalPERS.
4 As far as calculating Betts’ pension, the annual salary paid the Treasurer in 1986 was 5 approximately $42,500. The Constitutional Amendment froze Betts base to this salary. As a 6 result of the 40% limit on the base allowance of Constitutional Officers’ pension, Betts’ 7 unmodified base allowance would be 40% of $42,500 yearly salary or $17,000. Prior to being 8 adjusted for the 1954 COLA, Betts monthly modified adjusted base of his pension would be 9 about $1,416.67. 10 Exhibit 70 in the Alexander matter describes the serial COLAS under GC 9360.9. The 11 COLAS under GC 9360.9 were 519.3% in 1999 (the last year that CalPERS provided figures in 12 this exhibit). Increasing that COLA by the cost of living for the years 2000-2005 provides a 1954 13 COLA pursuant to GC 9360.9 of approximately 602% in 2005. 14 Multiplying Betts’ monthly $1,416.67 base compensation (as limited by the 1986 15 Constitutional Amendment) by the serial COLA pursuant to GC 9360.9 of approximately 602% 16 provides for a pension paid to Betts of (by my estimate) about $8,528.35. 17 CalPERS introduced Betts’ raw pension amount of about $8500. As is clear from the 18 attached documentation, the 1986 Constitutional Amendment greatly limited Betts pension 19 because it is no longer based on the salary of the incumbent. However, it is still based on serial 20 COLAS from 1954. 21 Attached is a declaration of Harvey Robinson, Respondent’s designated expert in this 22 matter. EXHIBIT 138 attached. Robinson calculates Betts pension as follows: 23 1. As State Treasurer Bert A. Betts was a constitutional officer and as such was a member of the Legislators’ Retirement System. At the 24 time of his disability retirement, which was effective September 1, 25 1976, he was credited with 8 years of service and his retirement allowance was based on his last annual salary of $21,499.00.
- 106 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 2. His initial base allowance was calculated under G.C Section 9359.1(b) 1 as it read prior to Stats. 1974, 2nd Ex. Session, Chapter 5, effective 2 10/7/74, and was calculated as follow: 3 8 years x 5% x $1791.58 = $716.63. The preceding base
4 of $716.63 was further adjusted in accordance with G.C. 9360.9 to reflect the COLA payable, to provide an 5 additional amount of $740.28. The unmodified allowance 6 was the sum of these two amounts, $1456.91. 7
8 3. As a result of his electing option 3, the option 3 factor of 88.2% was
9 applied to preceding amount to provide him a monthly retirement allowance of $1284.99. 10
11 4. Following the State Supreme Court decision in 1978 the annual 12 salary of the incumbent was $35,000. Consequently the retirement
13 allowance was adjusted in the following manner: 8 years x 5% x $2916.67 = $1166.67. The preceding base of 14 $1166.67 was further adjusted in accordance with G.C. 15 9360.9 to provide an additional COLA amount of $1528.33. 16 The unmodified allowance of the sum of these two amounts,
17 $2695.00, was further reduced by applying the option 3 factor of 88.2% to provide him a monthly retirement allowance in 18 the amount of $2209.90. 19
20 5. In 1986 the salary of the incumbent had increased to $42,500. Mr. 21 Betts’ retirement allowance for the calendar year 2005 was calculated
22 as follows: 8 years x 5% x $3541.67 = $1416.67. The preceding base 23 of $1416.67 was further adjusted in accordance with G.C. 24 9360.9 to provide an additional amount of $8531.19. The 25 unmodified allowance is the sum of these two amounts, $9947.86. As a result of his electing option 3, the option 3
- 107 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF factor of 88.2% was applied to preceding amount to provide 1 him a monthly retirement allowance in the amount of 2 $8774.[This amount precisely matches CalPERS’ assertion 3 in CalPERS’ Closing brief]
4 6. This “double barrel” adjustment was in effect until the passage of 5 Proposition 57 in November 1986. Increases to the salary of the 6 incumbent after January 1987 would no longer provide for a 7 recalculation of the retiree’s base allowance.
8
9 7. If Proposition 57 had not passed in 1986. Betts’ unmodified retirement allowance would be calculated as follows: $140,000 ÷ 12 10 = $11,666.67 x 40% = $4666.67 x COLA of 602.2% = $28,102.69 + 11 $4666.67 = $32,796.36 x 88.2% x 12 months = $347,116.67 12
13 In the Alexander matter, the parties have agreed that Alexander’s pension is based on the 14 salary of the incumbent. Starting November, 1 2004, the salary of the incumbent Secretary of the 15 Senate was $167, 904. 16 The raw pension amounts differ considerably as a result of Alexander’s base still being 17 based on the salary of the incumbent while Betts base is frozen. The difference between Betts 18 base frozen at $42,500 and Alexander’s base in the current salary of the incumbent Secretary of 19 the Senate of $167, 904 is about 400%. Therefore, one could expect that Alexander’s properly 20 adjusted pension would be about four times the pension that Betts currently receives. 21 The Betts court documents clarify that Betts’ pension is based on an even more generous 22 serial COLA calculation from 1954. To this day, CalPERS still computes Betts’ pension on serial 23 COLAS from 1954 pursuant to GC 9360.9. Alexander was only entitled to a COLA from the 24 date of his retirement in 1969. 25
- 108 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 As far as the COLA matter in question in Alexander, the Betts and Alexander calculation
2 methodologies are both based on serial COLAs. GC 9360.9 provided Betts with serial COLAs
3 from 1954 on top of an 1986 adjusted base salary. GC 9359.10 and 9360.10 entitles Alexander to
4 all the serial COLA increases after retirement in 1969 with an adjusted base of the current salary
5 of the incumbent Secretary of the Senate .
6 CalPERS “EXHIBIT A” and Respondent’s Exhibit 120 both calculate the pension and
7 underpayment according to this methodology.
8
9 LAW OF BETTS & “DOUBLE BENEFIT” -OVERVIEW 10 PRECEDENT CASE LAW FOR COLAS Plus INCUMBENT SALARY: BETTS 11
12 The Betts case is closely on point with respect to the “double COLAS” , “windfalls”, and
13 the intent of the legislature with respect to pension and cost-of-living increases. 14 Betts is the controlling precedent in these matters.. BETTS, v. BOARD OF 15 ADMINISTRATION OF the PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al. 21 16 Cal.3d 859, 582 P.2d 614, 148 Cal.Rptr. 158. See also EXHIBIT 59. 17 The court ruled: 18 Proceeding was instituted on petition for writ of mandate directing the Public Employees' Retirement System to compute correct pension benefits 19 for petitioner. The Supreme Court, Richardson, J., held that: (1) amendment which was enacted after petitioner's term of office as State 20 Treasurer but before his retirement in application for benefits under Legislators' Retirement Fund and which replaced prior "fluctuating" 21 system of benefit computation with a "fixed" system of computation was 22 unconstitutional as withdrawing benefits to which petitioner earned a vested contractual right while employed, and (2) petitioner was entitled as 23 former State Treasurer to have his pension benefits from Fund computed on basis of "fluctuating" system in effect at time of his term in office and, 24 hence, was entitled to have his benefits computed on basis of salary payable to present Treasurer rather than on basis of highest salary received 25 by petitioner during his term of office.
- 109 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Importantly, the court in Betts also ruled on several issues that are important here:
2 1. A public employee's pension constitutes an element of compensation, and a vested
3 contractual right to pension benefits accrues upon acceptance of employment.
4 a. Alexander’s pension fully and completely vested before December 1969
5 2. Right of a public employee to pension benefits may not be destroyed once it is vested
6 without impairing a contractual obligation of employing public entity.
7 a. The 1979-1980 changes in the interpretation impaired Alexander’s contract. 8 3. There is a strict limitation on conditions which may modify pension system in effect for 9 public employees during their employment. To be sustained as reasonable, alterations of 10 employees' pension rights must bear some material relation to the theory of a pension 11 system and its successful operation, And changes in a pension plan which result in 12 disadvantage to employees should be accompanied by comparable new advantages. 13 (Citations.) . . ." (Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131, 287 P.2d 765, 14 767, italics added.) We recently reaffirmed these principles in Miller v. State of 15 California (1977) 18 Cal.3d 808, 816, 135 Cal.Rptr. 386, 557 P.2d 970 . 16 a. In Alexander, CalPERS secret 1980 changes to Alexander’s pension were not 17 reasonable, they bore no material relation to a theory of a pension system, and 18 there were no offsetting comparable new advantages. They are not sustainable. 19 4. Statute which was in effect during petitioner's term in office as State Treasurer, setting 20 forth a "fluctuating" system for computing pension benefits from Legislators' Retirement 21 Fund, and statute enacted during petitioner's term in office, requiring automatic manual 22 adjustment of pension benefits to reflect upward changes in cost of living, formed basis 23 by which petitioner's reasonable pension expectations would be measured. West's 24 Ann.Gov.Code, §§ 9359.1, 9360.9. 25
- 110 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 a. Relying on the law in effect when he retired, Alexander formed his basis for
2 reasonable expectation of his pension in 1968-9 which included the dual
3 components of 9359.10: an upward adjustment of the base allowance based on
4 all of increases in the salary of the incumbent and in addition, not limited by
5 increases in the incumbent’s salary, all increases for changes in the cost of
6 living after retirement, from the base year.
7 5. Statute which was enacted during petitioner's term in office of State Treasurer and which
8 required automatic manual adjustment of pension benefits from Legislators' Retirement
9 Fund to reflect upward changes in a cost of living could not be deemed a "comparable
10 new advantage" which offset detriment to petitioner represented by statutory amendment
11 which was enacted after petitioner's term and before his retirement and which replaced
12 prior "fluctuating" system of benefit computation with a "fixed" system. West's
13 Ann.Gov.Code, §§ 9359.1 , 9360.9.
14 a. CalPERS’ secret inappropriate 1980 changes to Alexander’s vested pension
15 benefit occurred after he retired. CalPERS' secret changes impaired his vested
16 right because the changes did not include an upward adjustment of his
17 allowance or all of the COLAS since retirement. The changes were simply
18 detriments and disadvantages without adding any comparable new advantage.
19 6. Amendment which was enacted after petitioner's term of office as State Treasurer but
20 before his retirement and application for benefits under Legislators' Retirement Fund and
21 which replaced prior "fluctuating" system of benefit computation with a "fixed" system
22 of computation was unconstitutional as withdrawing benefits to which petitioner earned a
23 vested contractual right while employed. West's Ann.Gov.Code, §§ 9359.1 , 9360.9.
24
25
- 111 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 a. The 1980 changes and the 1998 cut in the Alexanders’ benefits were
2 unconstitutional as withdrawing benefits to which petitioner earned a vested
3 contractual right while employed.
4 7. Petitioner was entitled as former State Treasurer to have his pension benefits from
5 Legislators' Retirement Fund computed on basis of "fluctuating" system in effect at time
6 of his term in office and, hence, was entitled to have his benefits computed on basis of
7 salary payable to present Treasurer rather than on basis of highest salary received by
8 petitioner during his term of office. West's Ann.Gov.Code, §§ 9359.1 , 9360.9.
9 a. Alexander is similarly entitled to the benefit of increases in his pension allowance in
10 lockstep with increases in the salary of the incumbent “Secretary of Senate”
11 and, in addition, entitled to further upward adjustments for all of the cost of
12 living increases since retirement pursuant to the dual components of 9359.10.
13 In Betts, the court reasoned as follows:
14 In Allen, supra, we explained why the substitution of a "fixed" system of benefit computation for a "fluctuating" system constitutes a disadvantage 15 to affected employees: "Payment of a fixed amount freezes the benefit at a figure which is based on salary scales preceding retirement, thus the 16 longer an employee is retired on a fixed pension the more likely it is that the amount of his pension will not accurately reflect existing economic 17 conditions, whereas a retired employee receiving a fluctuating pension based on the salaries that active employees are currently receiving can 18 maintain a fairly constant standard of living despite changes in our economy." (45 Cal.2d at p. 132, 287 P.2d at p. 767.) In inflationary times, 19 we observed, the resulting disadvantage of a "fixed" system is obvious; 20 but the very unpredictability of economic cycles also "indicates the advantage of a plan for fluctuating benefits which attempts, however 21 roughly, to reflect the actual purchasing power of the dollar. . . ." (45 Cal.2d at p. 132, 287 P.2d at p. 768; see also Abbott v. City of Los 22 Angeles (1958) 50 Cal.2d 438, 448, 326 P.2d 484; Chapin v. City Commission (1957) 149 Cal.App.2d 40, 44-45, 307 P.2d 657.) 23 Judicial attention has also been given to the subject of "comparable new 24 advantages." The comparative analysis of disadvantages and 25 compensating advantages must focus on the particular employee whose own vested pension rights are involved. (Abbott v. City of Los Angeles, supra, 50 Cal.2d at pp. 449-453, 326 P.2d 484; ***162 **618 Frank v.
- 112 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Board of Administration (1976) 56 Cal.App.3d 236, 245, 128 Cal.Rptr. 1 378; see Abbott v. City of San Diego (1958) 165 Cal.App.2d 511, 518, 332 P.2d 324.) It has been said that the *865 offsetting improvement must 2 also "relate generally to the benefit that has been diminished." (Frank, 3 supra, 56 Cal.App.3d at p. 244, 128 Cal.Rptr. p. 384; Stork v. State of California (1976) 62 Cal.App.3d 465, 471, 133 Cal.Rptr. 207.) 4 The Betts case anticipates and defeats some of the arguments that CalPERS has made 5 with respect to the COLAS. 6
7 The Board urges that 1963 amendments to the pension plan provide the 8 necessary offsetting advantage in this case. In that year, the Legislature added section 9360.9, which requires automatic annual adjustment of 9 pension benefits to reflect upward changes in the cost of living. Each January 1, under this statute, the previous year's benefit is multiplied by 10 that year's average increase in the Bureau of Labor Statistics cost-of-living indices for San Francisco and Los Angeles, respectively, using 1954 as the 11 base year. The product of this calculation becomes the basis of the benefit payable for the ensuing year. 12 Thus, the Board argues, one "cost of living" formula was simply replaced 13 by another; petitioner, it urges, had no reasonable expectation when he left 14 office that he would enjoy the "double windfall" of the cost-of-living index formula provided by section 9360.9 Plus the "fluctuating" benefit 15 adjustment, the increasing salary scale, mandated by the pre-1974 version of section 9359.1 . Under the circumstances of this case, the Board's 16 contention cannot be sustained.
17 In asserting that termination of the "fluctuating" system was reasonable here, the Board relies heavily on Lyon v. Fournoy (1969) 271 Cal.App.2d 18 774, 76 Cal.Rptr. 869. The Court of Appeal in Lyon faced an unusual fact situation which was historically unique. Petitioner's decedent in that case 19 had retired from the Legislature in 1955 and commenced drawing a 20 monthly allowance from the Fund. At the time of decedent's retirement and for more than 10 years thereafter, the salary for members of the 21 Legislature was $500 per month. Decedent's allowance and, after his death, that of petitioner, his widow, were computed on the basis of this 22 salary.
23 Meanwhile, repeated attempts to liberalize legislative salaries by constitutional amendment were rejected by the voters; referendum 24 propositions of this kind were defeated in 1958, 1960 and 1962. In 1966, 25 however, a broader partial constitutional revision was successful at the polls. This measure (Proposition 1-A) repealed the $500 per month salary, authorized the Legislature to set its own salaries, and validated a 1966
- 113 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF statute fixing members' salaries at $16,000 per year, beginning with the 1 1967 term. (See Cal.Const., art. IV, s 4, and former art. XXII, s 6, as adopted Nov. 8, 1966; Gov.Code, s 8901.) 2
3 *866 However, the 1966 amendments also included a clause prohibiting any member who had retired prior to 1967 from receiving retirement 4 benefits computed on the basis of the new salaries and limited computation of the retirement benefits of such members to the pre-1967 5 salary of $500 per month. (Cal.Const., supra, art. IV, s 4.) The Legislature incorporated this requirement into the Legislators' Retirement Law itself. 6 (s 9359.11.)
7 Petitioner Lyon contended that her husband had earned a "vested right" to 8 computation of benefits on the basis of the salary provided by the 1966 constitutional amendments, under the "fluctuating" system in effect at his 9 retirement. The appellant court concluded that the purpose of a "fluctuating" pension system was to provide retirees some insulation 10 against normal variations in the cost of living; the substantial increase in salary from $500 per month ($6,000 per year) to $16,000 per year, it said, 11 had no relation to this purpose. Rather, it was simply the result of long- term legislative frustration over voter resistance to increased salaries. The 12 Legislature, observed the Lyon court, had already compensated retirees for the hardship caused by the 12-year salary "freeze" by its 1963 adoption of 13 the cost-of-living adjustment established in section 9360.9. Petitioner's 14 decedent, said the court, had no "reasonable expectation" while in office that he would enjoy a Double cost-of-living formula, particularly where 15 his contributions to the Fund had been ***163 **619 based on the pre- 1967 salary he received. The Legislature, the court concluded, properly 16 forestalled such a "windfall" by replacing one "cost-of-living" factor the "fluctuating" system of benefit computation based on variations in current 17 salaries with another a formula adjustment based directly on increases in the cost of living. (271 Cal.App.2d at pp. 783-786, 76 Cal.Rptr. 869.) 18 In Lyon, accordingly, After the member's retirement, the cost-of-living 19 formula in effect during his active service was replaced by another. The 20 Court of Appeal was therefore entirely correct in saying that the decedent had earned no contractual expectation While in office that he would 21 receive the benefit of Both systems. (Emphasis added) In contrast to Lyon, in the instant case, the 1963 enactment of section 9360.9 occurred During 22 petitioner's term as Treasurer, which ran from 1959 to 1967; the "fluctuating" system of benefit computation was also in effect during this 23 entire period. An employee's contractual pension expectations are measured by benefits which are in effect not only when employment 24 commences, but which are thereafter conferred during the employee's subsequent tenure. 25 *867 Thus, in Abbott v. City of Los Angeles, supra, 50 Cal.2d 438, 326
- 114 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF P.2d 484, the city argued that pension benefits added during 1923 had the 1 effect of offsetting the detriments incurred by public safety employees as a result of 1925 and 1927 amendments to the city's pension plan. Rejecting 2 this contention, we said, "the member plaintiffs and the husbands of the 3 widow plaintiffs rendered services to the city after January of 1923 and prior to the amendments of 1925 and 1927, and therefore . . . had earned 4 and vested rights in the retirement benefits already provided by the city charter During that period of time. (Citations.) It follows that advantages 5 added prior to Or during 1923 have no bearing upon the reasonableness of the detriments resulting from the 1925 and 1927 amendments." (50 Cal.2d 6 at p. 449, 326 P.2d 484, 490, italics added.) Furthermore, "The benefits conferred under a pension system by changes which are made from time to 7 time prior to the adoption of an amendment imposing a detriment 'have no bearing upon the reasonableness' of the detriment so imposed (citing 8 Abbott v. City of Los Angeles, supra); such benefits become a part of the 9 vested rights of the employees when conferred." (Abbott v. City of San Diego, supra, 165 Cal.App.2d 511, 518, 332 P.2d 324, 329; see also Santin 10 v. Cranston (1967) 250 Cal.App.2d 438, 441, 59 Cal.Rptr. 1.)
11 From application of the foregoing principles to the case before us we conclude that the prior version of section 9359.1 together with section 12 9360.9, enacted in 1963, form the basis by which petitioner's reasonable pension expectations must be measured. For four years, petitioner 13 provided his services under a statutory scheme which simultaneously included both computation methods. Under these circumstances, the 1963 14 enactment cannot be deemed a "comparable new advantage" offsetting the detriment represented by amendment of section 9359.1 in 1974. 15
16 We fully recognize that the effect of our holding is that petitioner thereby receives the benefit of a double increment of increase, a 17 troubling result. We can only observe that the Legislature must have intended to provide such benefits to constitutional officers serving 18 between 1963 and 1974 because it left in effect both of the formulae during that 11-year period ( emphasis added) 19
20 In Olson v. Cory, the Court addressed Betts as well in a way that is relevant to this case. We note that in Betts this court held the pensioner was entitled to both the 21 benefit of a basic retirement allowance calculated as a proportionate part of 22 the fluctuating salary of the incumbent in the office occupied by the pensioner and, additionally, a cost-of-living adjustment of the basic 23 allowance. We stated then that the effect of the holding "is that petitioner thereby receives the benefit of a double increment of increase, a troubling 24 result." (Betts v. Board of Administration, supra, 21 Cal.3d 859, 867, 148 Cal.Rptr. 158, 163, 582 P.2d 614, 619.) The net effect of our holding in the 25 instant case is to allow a judicial pensioner but one increment of increase, that being the increment of prorata increase in the salary of the judge occupying the office formerly occupied by the retired or deceased judge.
- 115 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF While that salary fluctuates with cost-of-living increases, the judicial 1 pensioner's proportionate share is his basic retirement allowance and it is not increased by any cost-of-living factor. 2
3 Betts is distinguishable on the ground that, unlike the instant case, there was express legislative direction mandating the cost-of-living 4 adjustment be applied to the fluctuating basic retirement allowance. (Id., at p. 865, 148 Cal.Rptr. 158, 582 P.2d 614.) It was thus necessarily 5 held that since statutes establishing both the fluctuating basic retirement allowance and the cost-of-living adjustment thereto were in 6 effect during the pensioner's term in office, he had acquired vested contractual rights to the dual benefits. (Emphasis added) 7 The court in Allen v. Board of Admin. of Public Employees' Retirement 187 Cal.Rptr. 192 8
9 Cal.App.,1982 wrote:
10 For the reasons stated herein, we conclude that our Supreme Court's 11 decision in Betts v. Board of Administration (1978) 21 Cal.3d 859, 148 Cal.Rptr. 158, 582 P.2d 614 is binding on the case at bench. Under the 12 doctrine of stare decisis ( Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 457, 20 Cal.Rptr. 321, 369 P.2d 937), we have no 13 alternative but to follow Betts, supra, and conclude that respondents had a contractual pension expectation to be paid a retirement allowance 14 computed on a cumulative basis using both the fluctuating salary formula 15 set forth in section 9359.1 , subd. (a) and the cost of living formula set forth in section 9360.9. Accordingly, we affirm the trial court's judgment 16 granting the writ of mandate and declaratory relief.
17
18
19
20
21
22
23
24
25
- 116 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 COLAS, SERIAL COLAS
2 REPLY TO CALPERS ASSERTION RE 3 COST OF LIVING ADJUSTMENTS AND INCREASES (COLAS) 4
5 Introduction RE COLAS
6 Cost-of living adjustments in the LRL are included in separate sections as well as in the
7 statutorily defined benefit.
8 In Alexander, GC 9359.10 requires that the adjusted base allowance ( based in the
9 incumbent’s salary) be further adjusted for all for the cost –of-living increases (plural) since
10 retirement. Under GC 9360.9, the cost of living in Betts began in a base year of 1954 prior to the 11 year of retirement. Both are serial COLAs calculated adnincreased in a year by year manner. 12 GC 9360.9 has been illustrated as a single number such as 577% because every person 13 subject to GC 9360.9 has the same base year of 1954. 14 GC 9360.10 has been calculated in a serial matter but, because each retiree has a different 15 base year of retirement, the COLA is separately calculated . With each member’s COLA 16 adjustment based in a different year of retirement, there is no single COLA number to apply to 17
18 each member’s base allowance.
19 GC 9359.10 calls for a year-by-year serial COLA determination that uses every COLA
20 since the year of retirement applied in a sequential year by year manner. Although the cost of
21 each year would be the same, each LSO member’s cumulative COLA adjustment will be
22 different. The correct methodology for calculating COLAs is illustrated in both EXHIBIT 120 23 and several of the scenarios in CalPERS EXHBIT A. 24
25
- 117 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Lastly, every COLAs increase in government pensions in PERL or LRL is serial and 1 starts either one or two years after the year of retirement. There is no COLA provision that 2
3 provides just one year’s COLA.
4 FACTS RELATED TO COLAS
5 The intent of GC 9359.10 and the Schrade Bill to including and furthering adjust the LSO
6 pension base allowance for all of the increases due to cost-of-living increases after retirement
7 was widely recognized at the time of the legislation and subsequently . EXHIBITS 1, 2, 15-17,
8 38. In CalPERS’ April 3, 1969 Bill Analysis of S.B.473, prior to the enactment of Govt. Code 9 9359.10, William E Payne , the CalPERS executive director, writes: 10 5. Service Retirement Allowance 11 The retirement allowance is 3% per year of service of the compensation at the time of vacating the office or the compensation payable to the 12 incumbent at the time each payment of the allowance falls due, whichever is higher, to a maximum of two-thirds of such compensation plus increases 13 for cost of living increases after retirement. (Emphasis in original) EXHIBIT 2. 14
15 The legislature added language at the end of GC9359.10 to clarify that the adjustments 16 for Cost-of-living after the retirement were “without respect to the limitations set forth in this 17 section”. GC 9359.10 reads: 18 provided, however, the allowance shall be further adjusted to reflect 19 cost-of-living increases occurring after the retirement of the legislative statutory officer as determined under Section 9360.10 without respect to 20 the limitations set forth in this section. (Emphasis added) 21
22 The only limitations set forth in this Statute were the 2/3 of incumbent’s salary
23 calculation used for the base allowance. Therefore it is clear that the Legislature intended that (i)
24 the adjusted benefit would not be limited to 2/3 of the salary of the incumbent and (ii) adjusted
25 benefit would not be limited the incumbent’s salary plus one year’s COLA. The limit on the
- 118 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF pension is only with respect to the unadjusted base allowance (2/3 of incumbent’s salary), not the 1 COLAS. 2
3 “Increases” (plural) in the cost of living occurring after the retirement of the legislative
4 statutory officer can only be considered to mean that the Legislature intended that Mr.
5 Alexander’s pension benefit would be first calculated with respect to 2/3 of the incumbent’s
6 salary and then increased on a year-by-year basis for each increase in the Cost-of-living that
7 occurred since his retirement in base year 1969.
8 Gov. Code Section 9359.10 requires that the base allowance of the Alexanders’ pension 9 (the higher of the incumbent’s salary or the office holder’s last salary) be additionally augmented 10 by all of the cost-of-living increases, calculated in a compounded manner, since retirement. 11 “..provided, however, the allowance shall be further adjusted to reflect 12 cost-of-living increases occurring after the retirement of the legislative statutory officer as determined under Section 9360.10 without respect to 13 the limitations set forth in this section..” GC 9359.10
14 and said total to be further adjusted to reflect cost-of-living increases occurring after the member's retirement as determined under Section 15 9360.10. GC 9359.12 16 Only 9359.10 and 93591.12 express their formula in one paragraph to indicate that all 17 of the increases since retirement should be used to adjust the base allowance upwards. This 18 ‘after retirement’ language and referring to 9360.10 was to distinguish these COLAS from the 19 serial COLAs in GC 9359.9 that uses 1954 as a base year. 20
21 CalPERS’ own Bill Analysis of SB 473 dated April 3, 1969 clearly indicates that the Bill
22 anticipated additional cost of living increases. The CalPERS Bill Analysis of SB 473 also clearly
23 indicates that the Legislature was not explicitly quantifying all of the potential costs when the
24 Legislature enacted the S.B.473. In that same CalPERS’ Bill Analysis, William E Payne, the
25 CalPERS Executive Director writes: FISCAL IMPACT:
- 119 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF The added State costs for retirement allowances for the four persons 1 affected, on the basis of total service to date and assuming retirement at the time of earliest eligibility is $434,828.00. The cash disbursement from 2 State funds for allowances on the same basis would be $29,002.00 for the 3 first year. These costs do not include cost-of-living adjustment after retirement. EXHIBIT 2. (Emphasis added) 4
5 Contemporary correspondence in 1969 about the bill and LSO benefits indicated that the 6 increased COLAS in the LSO pension law were recognized but the increased COLAS not 7 directly computed. Page 2, EXHIBIT 38. 8 “Difference in Legislators’ and PERS cost-of-living provisions (Leg. Full C-O-L change; PERS compound after three year”) 9 Not computed.”
10 Under the similar language of GC 9359.12, Legislators receive a compounded serial
11 COLA from date of retirement. PERS receive compounded COLAS starting the 2nd year after
12 retirement. The correspondence indicates that Legislature intended that the COLA part of the 13 LSO formula be consistent with the Legislators formula. In other words, the LSO were entitled to 14 a COLA calculated as of date of retirement. In addition, LSO received the benefit of increases in 15 the salary of the incumbent. 16 In their Statement of Issues for the Driscoll and White Hearings, CalPERS argued off the 17 point that the incumbent’s salary includes cost-of-living increases. However, (1) CalPERS fails to 18 prove or provide precedent or statutory authority as foundation for this misstatement. (2) 19
20 CalPERS inappropriately provides a statutory interpretation that fails to read all of the language
21 of the statute. EXHIBIT 18.
22 Although Driscoll and White’s Answer to CalPERS’ Statement of Issues in 1998
23 provided a similar example at page 9 (EXHIBIT 46), a clear example is in order:
24 A retiree retires at a base allowance of $1,000 (i.e. the incumbent salary would be 25 approximately $1,885). In the second year the CPI increases by 10%, but the salary of the
- 120 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF incumbent is increased by 0% (as was often the case historically). The third year, the CPI 1 increases by one percent but the salary of the incumbent increased only 5%. 2
3 In this example, during the second year, the retiree’s pension would be $1,100. But if
4 CalPERS’ interpreted the formula (incorrectly) as not providing for all of the CPI increases after
5 retirement, in the third year in the example, the retiree’s pension would only be $1,060 (one
6 percent increase in COLA and 5 % augmentation by increase in the salary of incumbent). In other
7 words, it would be less than the second year pension even though the incumbent received a
8 salary increase. However in the above example, the cost-of-living actually increases in 9 excess of 11%. 10 Clearly this interpretation of the statute does not in fact provide for a retirement pension 11 that makes sure that the pension does not lose purchasing power over time. Protecting purchasing 12 power involves compounding yearly cost-of-living increases. Clearly in order to maintain 13 purchasing power and actually provide for cost-of-living increases, the pension should be 14 calculated to provide for upward adjustments for all of the compounded cost-of-living increases 15
16 after retirement, year by year, in order, for every year since retirement.
17 CalPERS admits by inference that compounding is necessary. EXHIBIT 66. Although it
18 purports to calculate the pension benefit after 1980 as the salary of the incumbent with one years’
19 cola, actually, the Alexanders’ benefit was calculated with 1979 as a base year and subsequent
20 COLAS after that. However, since the statutory language so clearly calls for the base allowance 21 to be increased for the salary of the incumbent, CalPERS could not easily delete the “incumbent” 22 language from its interpretation without being laughable. In either case, the benefit was 23 inappropriately calculated. Without compounded COLAS in addition to the salary of the 24 incumbent, the benefit would have decreased or not kept pace with inflation. 25
- 121 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF The compounded COLA was the common methodology for Legislators and CO in the 1 LRS system at the time. CO had their pension linked to the salary of the incumbent until Prop 57 2
3 passed in 1986. It is clear that the legislature intended to protect the retirees from future
4 fluctuations or stagnations in their pensions
5 It is important to note that other pension statutes, including statutes that dictate an explicit
6 calculation methodology, refer to Govt Code 9360.10 as well. Government Code Section
7 9359.10 (Legislative Statutory Officers), Government Code Section 9359.12 (Legislators),
8 Government Code Section 9359.13 (Constitutional Officers), in addition to Government Code 9 Section 9359.09 (Cost of Living) refer to and some refer or reference the COLA component of 10 their calculations on Government Code Section 9360.10 (COLAs). All Require a serial COLA. 11 As far as CalPERS arguments in its 1998 SOI in the Driscoll and White matter, in 1985, 12 the Legislature intended to change the specific numerical index used in calculating the COLA 13 from a San Francisco Bay-Los Angeles amalgam to the more common National CPI. In the 14 years prior to 1985 the same language—different geography--is used: The “Consumer Price 15
16 Index for the Los Angeles-Long Beach-Anaheim area and the San Francisco-Oakland area shall
17 be used as the basis for determining the changes in the cost-of-living”. This language has never
18 been interpreted as establishing a methodology. It is not anything more than what it is—a
19 specification of the precise CPI to be used. 28
20 Even more obviously, LSO who vest after 1982 are entitled to a base allowance limited to 21 their highest salary which is further adjusted by all of the COLAs since retirement. Surely the 22 language of 9360.10 must apply equally to both pre and post 1982 LSOs. The only way to apply 23
24 28 At this point, Frances Alexander does not contest that the benefits should be increased by increases in the salary of the 25 incumbent and all increases in the cost of living that have occurred since retirement, basing the reference for each year’s cost-of- living increases on the index as referred to in Section 9360.10: “the Consumer Price Index of all Urban Consumers”. However, Mrs. Alexander wants and is entitled to have the base salary of 66% of the incumbent’s salary increased by the benefit of each year of those cost-of living that have occurred since retirement (i.e. for each year, the cost-of-living year-by-year since 1970).
- 122 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 9360.10 so that it does not violate equal protection is to enhance the base allowance of all LSOs 1 by all the COLAS since retirement starting from the base year. 2
3 As expressed in the 1998 SOI in the Driscoll and White matter ( which did not include
4 Alexander), the Chief Executive Officer’s opinion that the Legislature intended a “fresh start” in
5 1985 for the annual COLA based only on the most recent CPI is erroneous, defective, and
6 unconstitutional. It violates equal protection. In addition, CalPERS’ argument was first offered
7 as a justification for cutting the LSO pensions 13 years after the 1985 amendment to 9360.10 and
8 18 years after Mr. Alexander’s benefit was frozen (based on no authority). 9 There is no evidence to suggest that in 1985 the Legislature intended a “fresh start” or 10 wrote a law that entitled CalPERS to recalculate a “fresh start”. There is no evidence that the 11 Legislature intended the 1985 amendment to 9360.10 to be a “fresh start” or otherwise 12 significantly change the benefit due the retired LSOs. EXHIBITS 39, 40, 41, 45. 13 A review of the Elder Bill analysis of AB 1381(1984) reveals the intent to make 14 technical changes. EXHIBIT 45. The Bill Analysis of the Senate Committee on Public 15 Employment and Retirement for AB 1381 (1984) indicates absolutely no such legislative intent 16 to change the methodology of pension computation for LSOs. EXHIBITS 39, 40, 41,45. In fact, 17 there is no mention, basis, or even suggestion of LSOs in the Bill analysis and related materials. 18
19 The bill dealt with its own controversy, adding two more members to the Public
20 Employment and Retirement Board (including a public member appointed jointly by the Speaker
21 of the Assembly and the Senate Rules Committee). Other changes are referred to as technical,
22 hardly the word for meaningful changes in hotly disputed pension law.
23 Had the legislature considered and adopted real changes to LSO pensions, the bills would
24 have engendered a great deal of attention. In the past, these areas were scrutinized by K.W. Lee,
25 a Pulitzer Prize winning journalist, rife with ballot box struggles and litigated in the Supreme
Court. But at this time, there was nothing: no mention of a change to the LSOs.
- 123 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 In the same vein, a review of the Summary Digest of Statutes Enacted and Resolutions
2 Adopted in 1984 again gives absolutely no indication that AB 1381 had anything to do with
3 changing the methodology of pension computation. EXHIBIT 39.The Summary Digest speaks to
4 the geographic change in the area for which the CPI is calculated and in detail discusses the
5 change in PERB.
6 CalPERS arguments about the 1985 amendment were manufactured for the Driscoll and
7 White Hearings29. Almost thirty (30) years after CalPERS began computing these pensions
8 correctly under Government Code Sec. 9359.10, CalPERS wanted to justify changes to the
9 pension. CalPERS, looking for an excuse, latched onto the 1985 changes to provide some
10 justification for the result they sought. It is important to remember that the Legislature, under significant political pressure, had 11 to promote a Constitutional Amendment to change the pension calculation of Constitutional 12
13 Officers(CO). When it was passed, Proposition 57 provided such a “fresh start” for future
14 calculation of pension of the Constitutional Officers in future years. See EXHIBIT 49. For LSOs,
15 in 1981 and 1982 the Legislature specifically passed a bill SB 212 (Russell) that gave such a
16 fresh start to future Legislative Statutory Officers. EXHIBIT 15-17. In the 1985 changes to
17 9360.10, there is no indication in the record that the Legislature was contemplating any
18 significant change in the pension benefits of the retired Legislative Statutory Officers. 19 Basically, if CalPERS’ reasoning is given any credibility, what took a Constitutional 20 Amendment in order to change the Constitutional Officers’ future pension increases, was done 21 by CalPERS on its own initiative to freeze Mr. Alexander’s pension retroactively. 22
23 COLAS ARGUMENTS IN CalPERS’ STATEMENT OF ISSUES in 2005
24
29 25 More likely it appear that the Chief Executive Officer for CalPERS sometime in 1998 ordered that the metho- dology for computing cost-of-living increases be changed. He mandated that the annual COLA be based only on the most recent CPI and not on the salary of the incumbent “further adjusted’ to reflect cost of living increases occurring after the retirement of the LSO. Such result-oriented whimsical deviations from statutory language are inappropriate.
- 124 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 In this 2005 Statement of Issues, CalPERS has offered yet another new interpretation of
2 9359.10 and 9360.10, again successively cutting the vested pension benefit. Not being able to
3 use the arguments that CalPERS made in 1998 in the Driscoll and White matter because
4 Clarence Alexander vested in 1969, CalPERS has invented new arguments in 2005. In the 2005 SOI, CalPERS wants to avoid and circumvent the recognized interpretation 5 of 9360.10 to LSOs, saying that 9360.10 never intended to provide serial COLAS. The letter is 6
7 silent on the effect of 9360.10 on the Legislators’ pensions in 9359.12, where it has always
8 provided serial COLAS.
9 . There would be many more large government pensions similar in amount to Mr.
10 Alexander’s if Proposition 57 had not passed in 1986. CalPERS fails to put the benefit in
11 perspective historically as one of many benefits of this type, but perhaps one of the few that was
12 not cut by a Constitutional Amendment. 13 By its interpretation, CalPERS is either (i) ignoring the precedent case law of Betts or (ii) 14 seeking to overturn it. Betts v. Board of Administration PERS 582 P.2d 614. (1978). There are 15 no new laws or facts in this matter that would support distinguishing or overturning Betts. 16 By questioning the serial COLA interpretation of Government Code 9360.10 to the 17 pensions of Legislative Statutory Officers (“LSOs”) (GC 9359.10) when 9360.10 also applies to 18 the pensions of Legislators (GC 9359.12) under almost identical cost-of-living (COLA) statutory 19
20 language, CalPERS is asking the Court to take one of 2 paths, both of which are unconstitutional:
21 (i) Deny equal protection of the law to Legislative Statutory Officers (“LSO”s)
22 including Clarence Alexander;
23 (ii) Cut the vested pension benefits of Legislators who have received “serial”
24 COLAS since 1967 due to GC 9360.10 before GC 9359.10 was enacted. 25
- 125 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Taking away serial COLAs violates basic pension law, impairs vested 1 contracts and almost certainly will generate a flood of passionate litigation. 2
3 The appropriate route is to follow the legislative history, the plain meaning of the
4 statutes, and provide the serial COLAs to LSOs in the same manner as CalPERS did for the first
5 ten years of Alexander’s pension.
6 CalPERS concedes that the ‘base allowance’ of the LSO pension is based on the
7 incumbent’s salary. Then CalPERS’ argues that the incumbent salary includes all of increases for
8 the cost -of-living allowances since retirement. Therefore CalPERS reasons that Alexander 9 received all of the COLAs. This is contrary to Betts. It is also mathematically erroneous and a 10 false assumption. See EXHIBIT 66. 11 For purposes of argument, we will suppose that all of the increases in the salary of the 12 incumbent since 1970 were purely for COLAS (They weren’t; the pension increases were often 13 silent or increased for merit). The LSO pension formula requires that the base allowance, while 14 increased for increases in the incumbent’s salary, is reduced by 66% and then to 80.4 %. 15
16 Effectively only 53% of any increase is actually received by the recipient. As such, only 53% of
17 any COLA incorporated in an incumbent’s increased salary is received by the recipient. GC
18 9359.10 clearly says the pension should benefit from all of the COLAs since retirement. Even
19 generously construing CalPERS’ deeply flawed argument, by its defective interpretation
20 CalPERS seeks to give the LSO only half of the cost of living allowances for the last 35 years. 21
22 CalPERS argues that it mistakenly interpreted and calculated 9360.10 for LSOs since 23 1970. However, 9360.10 was passed in 1966 for Legislators as a serial COLA increase (i.e. all of 24 the cost of living increases since retirement). Serial COLAS had been the rule since 1966. In 25
- 126 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1969, the Legislature incorporated the existing serial COLA statute (9360.10) into the LSOs’ 1 new pension law. 2
3 When referring to GC 9360.10, the specific COLA language is nearly identical in
4 9359.12 (Legislators’) and 9359.10 (LSOs). If anything, the COLA language in 9359.10 is
5 significantly stronger, requiring more protection for LSOs, than the COLA language in 9359.12
6 which provides Legislators with a serial COLA.
7 LAW OF SCHRADE AND COLAS
8 S.B.473 explicitly created new retirement benefits for the Secretary of the Senate. It 9 incorporated and relied on an existing “serial” COLA section, GC 9360.10, as reference section 10 for the COLA to use in the benefit formula: 11 “provided, however, the allowance shall be further adjusted to reflect cost- 12 of-living increases occurring after the retirement of the legislative statutory officer as determined under Section 9360.10 without respect to 13 the limitations set forth in this section.” GC 9359.10.
14 GC 9360.10 also provides increasing Legislators’ pensions for all the COLAs after 15 retirement under GC 9359.12 under almost identical language. GC 9359.10 and 9359.12(a). 16 “..provided, however, the allowance shall be further adjusted to reflect 17 cost-of-living increases occurring after the retirement of the legislative statutory officer as determined under Section 9360.10 without respect to 18 the limitations set forth in this section..” GC 9359.10
19 and said total to be further adjusted to reflect cost-of-living increases occurring after the member's retirement as determined under Section 20 9360.10. GC 9359.12 21 This ‘after retirement’ language and referring to 9360.10 was to distinguish these 22 COLAS from the serial COLAs in GC 9359.9 that uses 1954 as a base year. 23
24 As is the custom, the California Public Employees’ Retirement System (CalPERS)
25 offered a bill analysis of S.B.473 on April 3, 1969 for its use and for that of the Legislature.
- 127 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 EXHIBIT 2. In CalPERS’ April 3, 1969 Bill Analysis of S.B.473, William E Payne, the
2 executive director, writes: 5. Service Retirement Allowance 3 The retirement allowance is 3% per year of service of the compensation at the time of vacating the office or the compensation payable to the 4 incumbent at the time each payment of the allowance falls due, whichever 5 is higher, to a maximum of two-thirds of such compensation plus increases for cost of living increases after retirement. (Emphasis in original) 6 Betts Case AND COLAS. 7 The characteristics of the LSO pension statutes in question are very similar to the CO 8
9 pension statutes that have been judicially reviewed and approved in Betts. Betts v. Board of
10 CalPERS 21 Cal.3d 859 (1978). Both have parallel and analogous reasoning, formulas, and
11 benefits. Because the statutory framework of the CO and LSO pensions are so comparable, the
12 precedent case law of Betts provides convincing authority.
13 In Betts the court reaffirmed the propriety of applying COLAS. 14 From application of the foregoing principles to the case before us we 15 conclude that the prior version of section 9359.1 together with section 9360.9, enacted in 1963, form the basis by which petitioner's reasonable 16 pension expectations must be measured. For four years, petitioner provided his services under a statutory scheme which simultaneously 17 included both computation methods. Under these circumstances, the 1963 enactment cannot be deemed a "comparable new advantage" offsetting the 18 detriment represented by amendment of section 9359.1 in 1974.
19 We fully recognize that the effect of our holding is that petitioner 20 thereby receives the benefit of a double increment of increase, a troubling result. We can only observe that the Legislature must have 21 intended to provide such benefits to constitutional officers serving between 1963 and 1974 because it left in effect both of the formulae 22 during that 11-year period ( emphasis added)
23 In Olson v. Cory, the Court addressed Betts as well in a way that is relevant to this case. 24 We note that in Betts this court held the pensioner was entitled to both the benefit of a basic retirement allowance calculated as a proportionate part of 25 the fluctuating salary of the incumbent in the office occupied by the pensioner and, additionally, a cost-of-living adjustment of the basic
- 128 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF allowance. We stated then that the effect of the holding "is that petitioner 1 thereby receives the benefit of a double increment of increase, a troubling result." (Betts v. Board of Administration, supra, 21 Cal.3d 859, 867, 148 2 Cal.Rptr. 158, 163, 582 P.2d 614, 619.) The net effect of our holding in the 3 instant case is to allow a judicial pensioner but one increment of increase, that being the increment of prorata increase in the salary of the judge 4 occupying the office formerly occupied by the retired or deceased judge. While that salary fluctuates with cost-of-living increases, the judicial 5 pensioner's proportionate share is his basic retirement allowance and it is not increased by any cost-of-living factor. 6 Betts is distinguishable on the ground that, unlike the instant case, 7 there was express legislative direction mandating the cost-of-living adjustment be applied to the fluctuating basic retirement allowance. 8 (Id., at p. 865, 148 Cal.Rptr. 158, 582 P.2d 614.) It was thus necessarily 9 held that since statutes establishing both the fluctuating basic retirement allowance and the cost-of-living adjustment thereto were in 10 effect during the pensioner's term in office, he had acquired vested contractual rights to the dual benefits. (Emphasis added) 11 The court in Allen v. Board of Admin. of Public Employees' Retirement 187 Cal.Rptr. 192 12 Cal.App.,1982 wrote: 13
14 For the reasons stated herein, we conclude that our Supreme Court's 15 decision in Betts v. Board of Administration (1978) 21 Cal.3d 859, 148 Cal.Rptr. 158, 582 P.2d 614 is binding on the case at bench. Under the 16 doctrine of stare decisis ( Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 457, 20 Cal.Rptr. 321, 369 P.2d 937), we have no 17 alternative but to follow Betts, supra, and conclude that respondents had a contractual pension expectation to be paid a retirement allowance 18 computed on a cumulative basis using both the fluctuating salary formula set forth in section 9359.1 , subd. (a) and the cost of living formula set 19 forth in section 9360.9. Accordingly, we affirm the trial court's judgment granting the writ of mandate and declaratory relief. 20
21
22 CALPERS “TRIPLE DIP” OBFUSCATION
23 CalPERS incorrectly asserts that Respondent wants a pension based on (1) the salary of
24 the incumbent Secretary of the Senate that is (2) further increased by all of the COLAS since
25 retirement in a serial manner (which would include the current year COLA) and supposedly (3) PLUS ONE EXTRA YEAR’S COLA.
- 129 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Respondent has never requested the third component of one extra years’ COLA. In fact,
2 the current year’s cost-of-living would be included under in term or definition of a serial
3 COLA that includes’ ‘increases after retirement’. CalPERS’ “Triple Dip” language betrays a
4 lack of familiarity with GC 9359.10 and GC 9360.10.
5 The “retroactive COLA” is clearly portrayed in the GC 9359.10 language of ‘increases
6 for the costs of living after retirement’. It is further clarified by comparison to GC 9360.9 that
7 provided for all of the costs of living using a 1954 base even though the law first applied in
8 1963.
9 Lastly, every COLAs increase in government pensions in PERL or LRL starts either one or
10 two years after the year of retirement. There is no COLA provision that provides just one year’s
11 COLA. CalPERs would have to cite to a COLA provision that provides just one year’s COLA
12 in order to provide any basis for this “triple dip” prattle.
13
14
15
16
17
18
19
20
21
22
23
24
25
- 130 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 REPLY RE DAMAGES 2 OPTION 2 BENEFIT CALCUALTION
3
4 INTRODUCTION RE OPTION 2 BENEFIT 5 Respondent Frances Alexander was denied the proper pension under Option 2 due to 6 CalPERS’ failed and inappropriate interpretation of GC 9359.10, GC 9360.10 and GC 9361 et 7 seq. Subsequent to the death of Clarence Alexander in Feb 1998 Frances Alexander benefit 8 should have been increased under the same pension formula, GC 9359.10 the Alexanders had 9 both vested under. 10
11 GC 9361.1 clearly establishes that Frances “shall receive the same benefits as the
12 surviving spouse would have received”, i.e. the dual benefits of GC 9359.10. The Alexanders
13 paid an immediate cost of about 20% in reduction in their pension inorder to retain for his wife
14 and beneficiary Frances ( if she should outlive him) the dual benefits of GC 9359.10.
15 In fact, for the twenty eight (28) years between 1970 and 1998, the Alexanders reduced
16 their pension by 20% in order to provide this higher benefit for Frances if she outlived him. 17
18 I. STATEMENT OF FACTS RE OPTION 2 BENEFIT 19 CalPERS wrongly withheld the Option 2 pension benefits due Frances Alexander, now
20 represented by the Alexander Family Trust. Subsequent to the death of Clarence
21 Alexander in Feb 1998 Frances Alexander benefit should have been increased under the
22 same pension formula, GC 9359.10, that both Alexanders had vested under.
23 CalPERS ignores (1)that from 1969 onward Clarence and Frances Alexander took a 24 80.4% reduction to their pension in order to cause the pension to continue the GC 9359.10 25 benefit to Frances for her life with a 100% Joint and Survivor Benefit that provided for payment
- 131 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF of all obligations including payment of the same “Double COLA” statutory benefit;(2) That 1 after Feb. 1998, the pension based on the double benefits of GC 9359.10 was explicitly payable 2
3 to Frances; (3) that Frances Alexander timely made a claim presentation to CalPERS after
4 Clarence’s death.
5
6 FACTS RE ALEXANDERS’ OPTION 2 BENEFIT
7 For his service from September 10, 1947 to November 30, 1969, the Alexanders paid
8 6.5% of his community property earnings into the retirement plan and was appropriately 9 credited with 22 years, 2 months and 21 days of service credit in late 1969. EXHIBIT 62. 10 Clarence and Frances were married in about 1937, prior to Clarence working for the state. 11
12 The Alexanders’ pension privileges and contractual benefit vested likely at the time
13 Clarence was elected Secretary of the Senate under the new terms of 9359.10. But at his
14 retirement in December 1969, the Alexanders secured the benefit of the dual components of
15 9359.10. Once the benefits vested and he had secured them with retirement based on a
16 reasonable expectation, the terms of the pension could not be diminished without CalPERS
17 providing a comparable new benefit. On his 1969 Application for Retirement Clarence designated Frances Alexander as the 18 beneficiary under Option 230, which provided the highest continuing allowance to the surviving 19 spouse. EXHIBIT 61. ALX 306. The Election of Legislator’s Retirement Allowance and 20 Beneficiary Designation to be Effective on December 2, 1969 reads: 21
22 Option 2 –Provides for a life allowance to the named beneficiary less than the modified allowance ( but in most cases greater than on half the 23 unmodified allowance). EXHIBIT 61 page 2 ALX 307.
24
25
30 Pursuant to Government Code Section 9359.95 and GC 9361.3.
- 132 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF Handwriting in Option “2” and the modified amount of “$1,013.05”31on the Election 1 form, Clarence elected to reduce their current benefit to 80.4% while he was alive in order to 2
3 secure the GC 9359.10 pension payments for his wife and beneficiary Frances after his death.
4 CalPERS admits that Clarence Alexander properly chose Option Settlement 2. Exhibit 27 Letter
5 of Ann Woodward. GC 9361.3 is still the law.
6 GC 9361.3. Optional Settlement 2 consists of the right to have a retirement allowance paid him or her until his or her death and thereafter 7 to his or her beneficiary for life.
8 Option Settlement 2 is an interconnected contract which causes an immediate reduction 9 in the retirement allowance so that the GC 9359.10 benefit will continue to be provided to the 10 beneficiary. The actuarial reduction is significant: an immediate 20% loss or reduction. Starting 11 in 1969, the Alexander present benefit was cut to 80.4% of the member’s unmodified benefit. 12 Option 2 is called ‘100% Joint and Survivor Option’ because 100% of the adjusted statutory 13 benefit continues to the beneficiary and remains an obligations until satisfied ( i.e. even after her 14 death). 15 Mr. and Mrs. Alexander understood and expected that his pension benefits would be 16 increased and paid according to the Schrade Bill (enacted as Government Code Section 9359.10) 17 for the longer period of (i) his life or (ii) the life of his wife with (iii) the obligation remaining 18 until satisfied . Frances Alexander’s right as beneficiary of Clarence Alexander’s pension 19 benefits vested upon Clarence’s retirement in 1969 and could not be changed without offering 20 her a comparable benefit. She is entitled to 100% of the dual benefits of GC 9359.10. 21 Over the ten year period between 1970 and 1979, CalPERS correctly administered the 22 formula and provided Mr. Alexander with the correctly calculated pension benefit. EXHIBIT 64 23 (1977 and 1979 calculations by CalPERS) Under GC 9359.10, Mr. Alexander was entitled to a 24
25 31 The unmodified allowance in 1969 was calculated by CalPERS at $1,260.01 and the modified allowance was calculated at $1,013.05. Basically, $1,260.01 multiplied by the actuarial reduction percentage of 80.4% for the life of both Clarence and Frances yielded a modified allowance of $1,013.05.
- 133 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 base allowance that was 2/3 of the higher of (i) his salary when he retired or (ii) the salary of the
2 incumbent, the base allowance of which was (iii) further adjusted upward by the Cost of Living
3 increases that had occurred since his retirement, using 1969 as his retirement base year. GC
4 9360.10 was used as the reference section for the COLA.
5 In about June 1980, CalPERS unilaterally and without notice to Mr. Alexander or anyone
6 outside CalPERS decided to freeze 32 Mr. Alexander’s benefit. Mr. Alexander was wholly
7 unaware of this freeze and CalPERS knew he was unaware of it (ALX 13). EXHIBIT 9.A review
8 of CalPERS’ annual statements for the years 1970 to 2004 that were sent to the Alexander
9 provide no clue and no notice of the change in interpretation. EXHIBIT 72.
10 CalPERS, in internal memorandum from Harvey Robinson, LRS coordinator, dated
11 November 19, 1991, admitted that Alexander (i) did not waive any rights and (ii) was underpaid. “Although the member may still wish to waive a portion of his 12 allowance, unless it can be administratively inferred that we failed to inform him of his rights under Chapter 17, staff have calculated that the 13 member’s gross allowance should be increased from the current 14 $7,558.52/month to $17,549.29/ month and that there is a retroactive lump sum payable that approximates $463,658.03. If the preceding lump 15 sum is payable, it could be inferred that the system has also incurred an interest liability and that the annuitant is subject to some interesting 16 federal and state tax consequences. Please advise how you would like us to proceed in the matter.” Internal Memo of November 19, 1991. 17 EXHIBIT 43 (Emphasis added)
18 Mr. and Mrs. Alexander were totally unaware of this change in computation and the 19 underpayment. CalPERS admitted that Mr. Alexander did not know. EXHIBITS 7-9, and 43. 20 For example, according to an October 24, 1995 CalPERS memo from Michael Priebe: 21 As documented in the file, Mr. Alexander’s pension has been increased with each COLA. However, his benefit has not been adjusted with incumbent salary 22 increases since 1980. Based on the LRS staff’s interpretation of G.C. section 23 9359.10 stating how to calculate retirement benefits, as of August 1, 1995, a retroactive lump sum of $988,514.31 is payable to Mr. Alexander. In addition, 24 his monthly gross allowance should be $21,944.75, rather than $8570.34 32 “Freeze” is used relatively in this context. Instead of following the statute, its own prior Bill Analysis of SB 473 at the time of 25 passage, and its previous interpretation, CalPERS unilaterally decided to not provide Mr. Alexander with increases in his pension for (1) increases in the salary of the incumbent; or (2) COLA since retirement. Instead, CalPERS decided to use the pension amount as it existed in 1979 as a base year and then increased it with the COLAs of each subsequent year. There is no statutory or other basis that we are aware of this formula or this interpretation.
- 134 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF which is currently being paid. These figures were reached by calculating the 1 retirement allowance based on the incumbent’s salary and increasing this amount for each COLA since Mr. Alexander’s retirement in 1969.( Emphasis 2 in original). 3 Mr. Alexander is currently unaware of the money which may be owed to 4 him. ( Emphasis added)(ALX 13) EXHIBIT 9.
5 The Alexanders lived through a time of great change. The cost-of-living increased 6 enormously. The salaries of government officials, particularly legislative aids, increased in line 7 with competitive Chief Executive endeavors. Luckily for the Alexanders, they retired young, 8 remained healthy, and lived long lives. This is exactly what a pension is intended to support. 9 Mr. Alexander died on February 2, 1998 at age 83. EXHIBIT 60. At his death, Mr. 10 Alexander was receiving (an incorrectly calculated) monthly pension benefit of $8,982.14. After 11 Mr. Alexander’s death, CalPERS inappropriately cut Mrs. Alexander’s benefit again to 12 $7,312.36. This subsequent improper cut was based on CalPERS’ incorrect (and subsequently 13 acknowledged to be incorrect) interpretation of Option 2, the choice to preserve GC9359.10 14 benefits for Frances. EXHIBIT 61. 15 Frances Alexander was 85 years old at the time of Clarence’s death. They had been
16 married 61 years. After Mr. Alexander’s death, Frances Alexander or Karen Matus timely filed
17 all the papers necessary and satisfied all the requirement needed by CalPERS or LRS. EXHIBIT
18 60. However, CalPERS did not inform or pay Frances Alexander of the correct pension amount. 19 In addition, calEPRS did not inform or pay the lump sum payable to her at Clarence 20 Alexander’s death. CalPERS did not pay the lump sum payable within 45 days. Since it was not 21 paid in full at his death, the accrued but unpaid monthly benefit earns interest at CalPERS’ Net 22 Earnings Rate pursuant to GC 21499(b). 23
24 LAW OF PENSION AND OPTIONAL SETTLEMENTS 25 PENSION LAW IS STATUTORY
- 135 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF The Alexander rights are established in statute. 1 "Retirement benefits for state employees are wholly statutory, ..." (Hudson 2 v. Posey (1967) 255 Cal.App.2d 89, 91, 62 Cal.Rptr. 803), and upon 3 acceptance of public employment, provisions of the applicable pension law become an integral part of the contract of employment. (Kern v. City 4 of Long Beach (1947) 29 Cal.2d 848, 853, 179 P.2d 799.)
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7 OPTIONAL SETTLEMMENTS
8 The Legislators Retirement Law allows legislators the right to reduce their pension 9 benefit in the first instance in order to secure the retirement benefit for the spouse or beneficiary 10 for life. The actual language is “a member or retired member may elect, or revoke or change a 11 previous election, to have the actuarial equivalent of his retirement allowance as of the date of 12 retirement applied to a lesser retirement allowance”. 13 “His retirement allowance” clearly refers to the dual benefits of GC 9359.10 only 14 reduced by the actuarial 80.4%. Therefore Frances is entitled to “his retirement”, the GC 9359.10 15
16 benefit, reduced (as it was) by 80.4%.
17 The law speaks in terms of a retirement allowance. The retirement allowance is
18 statutorily defined in GC 9359.10. Therefore Frances is entitled and required to receive the
19 retirement allowance in the GC 9359.10 statute, only reduced for the actuarial amount of 80.4%.
20 GC§ 9361. Election to have actuarial equivalent of retirement 21 allowance applied to lesser allowance 22 In lieu of the retirement allowance for his life alone, a member or retired member may elect, or revoke or change a previous election, to have the 23 actuarial equivalent of his retirement allowance as of the date of retirement applied to a lesser retirement allowance, in accordance with 24 one of the optional settlements specified in this article.
25 The Attorney General’s opinion says that once the retired member’s allowances stops (i.e. his
property interest in the pension defeases), that same property interest in the statutory benefit is
- 136 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF then the beneficiary’s property (i.e. the property interest in the statutory benefit is transferred to 1 law to her) 2
3 Member may elect optional settlement and also be entitled to his own unmodified allowance, and it is not a condition of payment of spouse's 4 allowance that the member must be serving in the legislature at the time of his death or retirement; in addition, the option elected by the member 5 is defeasible at the instance of the surviving spouse. 38 Op.Atty.Gen. 163, 11-2-61. 6 Any further reduction or freeze would be an impairment of the Alexander’s vested 7 contract right without a comparable new advantage. 8
9 GOVERNMENT CODE 9361.1 10 GC 9361.1 clearly establishes that Frances “shall receive the same benefits as the 11 surviving spouse would have received”, i.e. the double benefit of GC 9359.10. 12
13 GC 9361.1. Time for election, revocation or change of election; effect of death or spouse or judgment of divorce or annulment; substitution 14 of different optional settlement; writing requirement; benefit received by surviving spouse where optional settlement elected 15 (e) If a member who is eligible for retirement has elected one of 16 the optional settlements specified in this article, the surviving spouse of that member shall receive the same benefits as the 17 surviving spouse would have received if the date of his or her death had also been the date of his or her retirement and if retirement had 18 preceded death. If in that event benefits are paid to a surviving spouse, no payment shall be made pursuant to Section 9359.8. If a 19 member dies without having elected an optional settlement and there is a surviving spouse, he or she shall be deemed for the purposes of 20 this paragraph to have elected Optional Settlement No. 2. In either case, the benefits payable to the surviving spouse shall be in the 21 same amount as if the member had elected to receive credit for 22 service rendered prior to the date he or she became a member of this system and had paid the full amount of the contributions in respect 23 to that service. (Emphasis added)
24 Pension Law liberally construed in Pensioner’s favor 25 The LRL is liberally construed in Frances Alexander’s favor
- 137 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 Pension legislation is subject to liberal construction. Cory v. Board of Administration (App. 3 Dist. 1997) 67 Cal.Rptr.2d 763, 57 Cal.App.4th 2 1411. 3 Ambiguity or uncertainty in pension legislation is to be resolved in 4 pensioner's favor. Cory v. Board of Administration (App. 3 Dist. 1997) 67 Cal.Rptr.2d 763, 57 Cal.App.4th 1411. 5
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7 Obligations Remain Discharged :
8 GC § 20164 indicates that CalPERS is still obligated until PERS has discharged all of its 9 obligations to the respective member and beneficiaries. 10 GC§ 20164. Duration of obligations; limitation of actions 11 (a) The obligations of this system to its members continue throughout their respective memberships, and the obligations of this system to and in respect to 12 retired members continue throughout the lives of the respective retired members, and thereafter until all obligations to their respective beneficiaries under optional 13 settlements have been discharged.
14 GC § 20164 clearly indicates that the obligations continue through the lives of the
15 members and continue thereafter under all obligations to the beneficiaries have been satisfied. 16 All “obligations” speaks to the accrued underpayment as well as death benefits, monthly benefit, 17 or all other obligations. Clearly, since there remains an underpayment, that underpayment 18 obligation has not been discharged. 19 The statute states that CalPERS obligations continue until all obligations to their 20 respective beneficiaries under optional settlements have been discharged. Clarence Alexander 21 chose Option Settlement 2. Exhibit 27 22
23 Government Code Section 9361.3 Optional Settlement 2 consists of the right to have a retirement allowance paid him or her until his or her death 24 and thereafter to his or her beneficiary for life.
25 Option Settlement 2 continues the GC 9359.10 benefit for the beneficiary’s life and
continues any other un-discharged obligation. Per GC 9361, the Alexanders agreed to an
- 138 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF immediate 20% or so reduction so that Frances would receive the GC 9359.10 benefit . 1 Importantly if Frances died before him, this reduction would be worthless. This is called a 100% 2
3 Joint and Survivor Option.
4 CalPERS on July 17, 2004 recognized the interconnectedness of the entire Option
5 Settlement 2 package. CalPERS paid an initial settlement of $178,371 for a recognized failure of
6 correctly paying the Option 2 benefit. Exhibit 27.
7 In any event, CalPERS obligations continue “until all obligations to their respective
8 beneficiaries under optional settlements have been discharged.” Until CalPERS pays the 9 underpayment, CalPERS’ obligations have not been discharged. Therefore Frances, and the 10 entities taking as successor in interest to Frances’s legitimate claim, may also take. 11
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- 139 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 ATTORNEYS’ FEES REPLY TO CALPERS ASSERTION THAT 2 NO ATTORNEY FEES ARE DUE
3 Introduction to Attorney Fees 4 Respondent seeks attorney fees. Roberti Jensen LLP has acted as the attorney for 5 Respondents in this matter. Respondent finds that attorney fees are due under a number of 6 statutes and are directly a result of CalPERS’ willful, frivolous, bad faith, or intentional failure to 7 appropriately pay interest on the pension benefit that is due. 8 For example, CalPERS filed 12 pounds of filings, some of them Motions to Strike that 9 should have been filed 10 months ago, 2 days after the deadline as required by ALJ Lew. This 10 needless filing of meritless and time barred motions is an abuse of legal process and likely bad 11 faith action taken to get an unfair advantage in litigation. 12 CalPERS’ various Motions, including their defective, late filed Motions to Strike, are 13 flawed for two reasons (1) CalPERS Motions to Strike were filed after the time for filing 14 responsive pleading had passed pursuant to CCP 425(b)(1); and (2) CalPERS motions were filed 15 late and contrary to the Judge’s orders. 16 Respondent requests the court to grant judicial notice of the time of filing of Respondents 17
18 Answer, CalPERS Statement of Issues/Accusation, and CalPERS recent Motions to Strike
19 Various Pleadings, including Motions to Strike for Interest, Motions to Strike for Attorney Fees,
20 et al. Evidence Code 452.
21 Respondent seeks an additional hearing to calculate attorney fees after this matter
22 is completed, because the attorney fees keep increasing due to CalPERS actions and this 23 matter is not yet completed or resolved. 24
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RIGHT TO ATTORNEY’S FEES
- 140 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 We claim these attorneys fees and costs are directly a result of CalPERS’ willful,
2 frivolous, bad faith, and intentional failure to appropriately pay the pension benefit that is due.
3 Pursuant to Govt Code Section 11455.3033, they are recoverable. We believe that CalPERS’
4 actions are frivolous and shows many incidents of bad faith (such as Ms Hedgal’s letter demand
5 that Frances Alexander, a 90-year old widow, repay $100,000 or sign a release).
6 Govt Code 11455.30. (a) The presiding officer may order a party, the party's attorney or other authorized representative, or both, to pay reasonable expenses, 7 including attorney's fees, incurred by another party as a result of bad faith actions 8 or tactics that are frivolous or solely intended to cause unnecessary delay as defined in Section 128.5 of the Code of Civil Procedure. (b) The order, or denial 9 of an order, is subject to judicial review in the same manner as a decision in the proceeding. The order is enforceable in the same manner as a money judgment or 10 by the contempt sanction.
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12 In addition, California Code of Civil Procedure 128.5 indicates that attorneys fee should be
13 awarded in this situation.
14 CPP §128.5 C.C.P. § 128.5. Frivolous actions or delaying tactics; order for 15 payment of expenses; punitive damages (a) Every trial court may order a party, the party's attorney, or both to pay 16 any reasonable expenses, including attorney's fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely 17 intended to cause unnecessary delay. This section also applies to judicial arbitration proceedings under Chapter 2.5 (commencing with Section 18 1141.10) of Title 3 of Part 3. 19 (b) For purposes of this section: (1) "Actions or tactics" include, but are not limited to, the making or 20 opposing of motions or the filing and service of a complaint or cross- complaint only if the actions or tactics arise from a complaint filed, or a 21 proceeding initiated, on or before December 31, 1994. The mere filing of a complaint without service thereof on an opposing party does not constitute 22 "actions or tactics" for purposes of this section. (2) "Frivolous" means (A) totally and completely without merit or (B) for 23 the sole purpose of harassing an opposing party. (c) Expenses pursuant to this section shall not be imposed except on notice 24 33 Government Code 11455.30. (a) The presiding officer may order a party, the party's attorney or other authorized 25 representative, or both, to pay reasonable expenses, including attorney's fees, incurred by another party as a result of bad faith actions or tactics that are frivolous or solely intended to cause unnecessary delay as defined in Section 128.5 of the Code of Civil Procedure. (b) The order, or denial of an order, is subject to judicial review in the same manner as a decision in the proceeding. The order is enforceable in the same manner as a money judgment or by the contempt sanction.
- 141 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF contained in a party's moving or responding papers; or the court's own 1 motion, after notice and opportunity to be heard. An order imposing expenses shall be in writing and shall recite in detail the conduct or 2 circumstances justifying the order. 3 (d) In addition to any award pursuant to this section for conduct described in subdivision (a), the court may assess punitive damages against the 4 plaintiff upon a determination by the court that the plaintiff's action was an action maintained by a person convicted of a felony against the person's 5 victim, or the victim's heirs, relatives, estate, or personal representative, for injuries arising from the acts for which the person was convicted of a 6 felony, and that the plaintiff is guilty of fraud, oppression, or malice in maintaining the action. 7 (e) The liability imposed by this section is in addition to any other liability imposed by law for acts or omissions within the purview of this section. 8 Case Law 9
10 Intent of legislature in enacting statute authorizing sanctions for bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary 11 delay was to broaden the powers of trial courts to manage their calendars and provide for the expeditious processing of civil actions by authorizing 12 monetary sanctions not authorized; the statute authorizes the award of attorney fees as a sanction to control improper resort to the judicial 13 process. Levy v. Blum (App. 5 Dist. 2001) 112 Cal.Rptr.2d 144, 92 Cal.App.4th 625, review denied. Costs 2 14 Statute authorizing sanctions for bad-faith actions or tactics that are 15 frivolous or solely intended to cause unnecessary delay permits the award of attorney fees, not simply as appropriate compensation to the prevailing 16 party, but as a means of controlling burdensome and unnecessary legal 17 tactics. Levy v. Blum (App. 5 Dist. 2001) 112 Cal.Rptr.2d 144, 92 Cal.App.4th 625, review denied. 18 Legislature crafted statutes governing sanctions to strike a balance 19 between competing interests: the need to control improper litigation 'tactics' and the desire to avoid chilling vigorous advocacy. Levy v. Blum 20 (App. 5 Dist. 2001) 112 Cal.Rptr.2d 144, 92 Cal.App.4th 625, review denied. Costs 2 21 Statute that permits award of attorney fees incurred by a party as result of 22 other party's bad-faith actions or frivolous tactics not only provides 23 appropriate compensation to prevailing party, but serves as a means of controlling burdensome and unnecessary legal tactics. Pacific Trends 24 Lamp & Lighting Products, Inc. v. J. White, Inc. (App. 4 Dist. 1998) 76 Cal.Rptr.2d 918, 65 Cal.App.4th 1131, modified on denial of rehearing. 25 Costs 194.44
- 142 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF When action utterly lacks merit, trial court is entitled to infer that action 1 was taken in bad faith. In re Marriage of Drake (App. 2 Dist. 1997) 62 Cal.Rptr.2d 466, 53 Cal.App.4th 1139, as modified, review denied 2
3 ADDITIONAL ATTORNEY FEE 4 CODE AUTHORIZIATIONS 5 In the alternative, Government Code Section 800 authorizes attorney fees in circumstance
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- 143 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF 1 CONCLUSION
2 Respondent believe that the Alexanders or Alexander Family Trust (Real Party in 3 Interest) are entitled to: 4 (ix) A pension based in the salary of the incumbent Secretary of the Senate 5 increased by all the COLAs since 1969 in a serial manner; 6 (x) Payment of the underpayment; 7
8 (xi) interest at 7% on the underpayment from June 1979 to Feb 1998 ;
9 (xii) interest at the greater of PERS net earnings rate or 7% per GC 21499 on the
10 accrued but unpaid lump sum outstanding and not paid to the Alexanders at
11 Feb 1998 ( $4,666,697 per Schedule 3.4);
12 (xiii) interest at seven percent for the underpayment of Frances Alexander’s
13 allowance from March 1998 to her death ($2,815, 971). 14 The total underpayment plus interest for the period of June 1979 to the Dec 2005 is 15 $7,482,668 through Dec 2005. 16 As of March 2006, that amount has increased to $7,610,309. 17 Respondent also seeks interest on the unpaid amounts to the later of (i) the current Month 18 (March 2006), or (ii) when payment is actually made. 19 Respondent request attorney fees and a hearing to determine the amount of attorney fees 20
21 due.
22 RESPECTFULLY SUBMITTED this March 14, 2006
23 ______John Jensen, Esq. 24 Roberti Jensen LLP 25 Attorney For Frances Alexander, Alexander Family Trust, et al
- 144 - ALEXANDERS’ REPLY BRIEF TO CALPERS CLOSING TRIAL BRIEF