902 F.3d 1061
9th Cir.2018Background
- Orange County historically pooled active and retired employees for health-insurance premiums (creating a de facto Retiree Premium Subsidy); retirees also received a negotiated monthly Grant Benefit (years-of-service × Grant Multiplier, funded by a 1% employee contribution and OCERS surplus) established in 1993.
- In 2006–2008 the County restructured benefits: it split active and retiree premium pools (ending the implicit subsidy), reduced the Grant Multiplier escalation, and cut the Grant Benefit by 50% upon Medicare eligibility, increasing retirees’ costs.
- REAOC litigation challenged elimination of the pooled-subsidy; the California Supreme Court (certified question) held vested retiree-benefit rights may be implied from ordinances/resolutions under certain circumstances; subsequent Ninth Circuit decisions applied that standard.
- Harris class action (this case) asserted (1) contract claims that the Grant Benefit and the pooled premium were vested, and (2) an age-discrimination claim under California FEHA arising from splitting the pools.
- District court dismissed retirees’ contract and FEHA claims; on appeal the Ninth Circuit affirms dismissal of the pooled-subsidy contract claims (per REAOC V) but reverses dismissal of certain Grant Benefit contract claims and affirms dismissal of the FEHA claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MOUs and related extrinsic evidence support an implied, vested lifetime right to the Grant Benefit | Retirees: MOUs promised the Grant; extrinsic evidence (funding design, OCERS $150M, employee contributions and rebate) shows intent that the Grant vest for life | County: benefits were annual, no ordinance/resolution created a perpetual promise; anti-vesting language in plan precludes perpetual right | Reversed dismissal: pleadings sufficiently allege an implied vesting term supported by extrinsic evidence and Board resolutions adopting MOUs; claims may proceed |
| Whether retirees had a contractual right to continuation of the pooled Retiree Premium Subsidy | Retirees: prior practice of pooling created an implied, vested subsidy | County: no explicit statutory/legislative duty to maintain pool; REAOC V already decided this | Affirmed dismissal per REAOC V: no contractual right to continued pooled subsidy |
| Whether FEHA (age discrimination) covers changes to retiree benefits and whether splitting the pool violates FEHA | Retirees: splitting pool targeted retirees and used retiree status as a proxy for age, constituting age discrimination | County: FEHA/ADEA principles allow treating retirees as a separate group; actuarial consideration of group age distribution is a legitimate, non-age-motivated factor | Held: FEHA covers retirees, but splitting the pool and actuarially accounting for retirees’ higher average age is not unlawful age discrimination as a matter of law |
| Pleading / procedural sufficiency: whether district court properly denied leave to amend based on prior Ninth Circuit instruction | Retirees: were permitted by Harris I to amend to plead implied terms using extrinsic evidence | County: Harris I limited remand and required specific MOU terms; dismissals were proper | Held: District court erred in dismissing Grant Benefit contract claims with prejudice; leave to plead implied vesting was within scope of Harris I remand and SAC met plausibility at pleading stage |
Key Cases Cited
- Retired Employees Association of Orange County, Inc. v. County of Orange, 52 Cal. 4th 1171 (Cal. 2011) (California Supreme Court: vested retiree health benefits may be implied from ordinances/resolutions in certain circumstances)
- Sonoma County Association of Retired Employees v. Sonoma County, 708 F.3d 1109 (9th Cir. 2013) (pleading framework for implied vested retiree-health benefits; extrinsic evidence may show intent)
- Retired Employees Association of Orange County, Inc. v. County of Orange, 742 F.3d 1137 (9th Cir. 2014) (affirming no contractual right to continued pooled premium subsidy)
- Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993) (ADEA disparate-treatment liability depends on whether age actually motivated employer’s decision)
- Kentucky Retirement Systems v. EEOC, 554 U.S. 135 (2008) (distinguishes pension-status-based actions from age-motivated discrimination)
- Manhart v. Department of the Air Force, 435 U.S. 702 (1978) (Title VII bars class-based employment practices that discriminate against individuals of a protected sex despite actuarial generalizations)
- Erie County Retirees Ass’n v. County of Erie, 220 F.3d 193 (3d Cir. 2000) (ADEA applies to discriminatory structuring of retiree benefits post-retirement)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: complaint must contain sufficient factual matter to state a plausible claim)