CATHY LEXIN еt al., Plaintiffs and Respondents, v. CITY OF SAN DIEGO, Defendant and Appellant.
No. D062970
Court of Appeal, Fourth District, Division One, California
Dec. 23, 2013
A petition for a rehearing was denied January 22, 2014
222 Cal. App. 4th 662
Appellant‘s petition for review by the Supreme Court was denied April 16, 2014, S216280.
COUNSEL
Jan I. Goldsmith, City Attorney, and David J. Karlin, Deputy City Attorney, for Defendant and Appellant.
Goldfarb & Lipman and James T. Diamond, Jr., for League of California Cities as Amicus Curiae on behalf of Defendant and Appellant.
Gibson Dunn & Crutcher and Nicola T. Hanna for Plaintiff and Respondent Cathy Lexin.
Coughlan Semmer Fitch & Pott and Raymond J. Coughlan, Jr., for Plaintiff and Respondent Ronald L. Saathoff.
Sheppard, Mullin, Richter & Hampton, Robert D. Rose, Karin D. Vogel; Polek Law Group and Frank J. Polek for Plaintiff and Respondent John A. Torres.
David A. Hahn for Plaintiff and Respondent Mary Vattimo.
Law Offices of Frank T. Vecchione and Frank T. Vecchione for Plaintiff and Respondent Terri A. Webster.
Damiani Law Group and Lisa J. Damiani for Plaintiff and Respondent Sharon K. Wilkinson.
OPINION
McCONNELL, P. J.—This is the latest appeal arising from the City of San Diego‘s (the City) infamous underfunding of its employment retirement
In this appeal, the issue is whether the City‘s resolution also requires it to pay the board members’ criminal defense costs in Lexin, supra, 47 Cal.4th 1050, an action the San Diego County District Attorney brought against them for felony violation of the state‘s conflict of interest statute,
We affirm the judgment. The plain language of the City‘s resolution requires it to pay criminal defense costs and there is no statutory impediment.
FACTUAL AND PROCEDURAL BACKGROUND4
In 1996 the City modified its method of funding the pension fund under an agreement known as the “City Manager‘s Proposal 1” (MP1). Historically, an actuary had determined the annual rate, but the City began contributing a set
In 2001 SDCERS earnings began falling precipitously as the economy faltered. The City was concerned that the 82.3 percent trigger would be met, which would require it to contribute an additional $25 million to the pension fund in one year. During the same time, the City entered negotiations with municipal unions over new labor agreements and the unions sought enhanced retirement benefits. The balloon payment “would have seriously hampered the City‘s ability to deliver services and would have led to layoffs,” and consequently, “the City elected to condition any increase in pension benefits on its obtaining relief from the SDCERS [b]oard from the effect of hitting the trigger.” (Lexin, supra, 47 Cal.4th at p. 1066.)
In 2002 the city council, in conjunction with the city manager, developed, wrote, and formally proposed to the board a modification to MP1, known as “Manager‘s Proposal II” (MP2). The City originally proposed lowering the trigger to 75 percent, but ultimately MP2 retained the 82.3 percent trigger and provided that if it was met, the City would have until 2009 to reach the actuarial rate. The city attorney approved MP2 as to form and legality.
During the board‘s consideration of MP2, it had significаnt concerns about potential liability arising from its approval. The board‘s fiduciary counsel opined there was a “material risk” that if it approved the proposal, at least as it was originally designed to lower the trigger to 75 percent, a court would find it had not properly exercised its fiduciary responsibility and board members could be held personally liable. Further, the board was apprised that a local attorney had already threatened a lawsuit. The board members requested an indemnity agreement before approving MP2.
On Novеmber 18, 2002, the city council unanimously adopted resolution No. R-297335 (resolution R-297335) to indemnify the board members. The board approved MP2, and an agreement, also dated November 18, memorializes the terms. Fiduciary counsel opined that the measure in its final form was a proper exercise of the board‘s fiduciary responsibility.
Resolution R-297335‘s preamble explains that board members “may, from time to time be subjected to claims and suits for actions taken in [that] capacity,” and “there is a need to protect and encourage individuals who volunteer their time and their talent to serve in the public interest . . . .” Resolution R-297335 provides that “the City shall defend, indemnify and hold harmless all past, present and future members of the Retirement Board against all expenses, judgments, settlements, liability and other amounts
In May 2005 the district attorney charged the board members with felony violations of
During March and April 2006 city council meetings, Aguirre urged the city council to rescind resolution R-297335 retroactively to avoid liability for criminal defense costs. The city attorney failed to muster a majority vote, although the council reportedly rescinded the resolution prospectively.
The board members moved to dismiss the criminal information on the ground their approval of MP2 did not violate
Lexin reversed, except as to Saathoff, concluding the board members should have been dismissed because they had no conflict of interest within the meaning of
Lexin concluded that Saathoff, who at the relevant time was the incumbent president of a municipal union, “could on the preliminary hearing record reasonably be suspected of having obtained a unique, personalized pension benefit as a result of voting to approve the retirement board‘s contract with the City.” (Lexin, supra, 47 Cal.4th at p. 1063.) After the adverse ruling in Lexin, however, the district attorney dismissed all charges.
The board members then commenced this action against the City for a judicial declaration they are entitled to costs of defense in the criminal action under resolution R-297335. Both sides moved for summary judgment, and in its first tentative ruling the court ruled in favor of the City. The cоurt determined that although a public entity may contract to provide criminal indemnity rights to its employees, an award was precluded since “neither [resolution] R-297335 nor any later enactment addresses the two findings required by
At the hearing, the board members arguеd the city council‘s adoption of resolution R-297335 coupled with its subsequent failure to retroactively rescind the resolution implicitly satisfied the criteria of
After considering the supplemental briefing, the court issued a new tentative ruling in the board members’ favor. The court determined resolution R-297335 applies to criminal actions; the resolution did not excuse the City from complying with the safeguards of
DISCUSSION
I
Standard of Review
A motion for summary judgment shall be granted where “there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (
” ‘We review the grant of summary judgment de novo. [Citation.] We make “an independent assessment of the correctness of the trial court‘s ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law.” ’ ” (Howard Entertainment, Inc. v. Kudrow (2012) 208 Cal.App.4th 1102, 1113 [146 Cal.Rptr.3d 154].) We affirm the summary judgment on any correct legal theory, as long as the parties had an adequate opportunity to address the theory in the trial court. (California School of Culinary Arts v. Lujan (2003) 112 Cal.App.4th 16, 22 [4 Cal.Rptr.3d 785].) Further, interpretation of the City‘s resolution, presented on undisputed facts, and applicable provisions of the Government Claims Act (
II
Defense of Public Employees
A
The Government Claims Act (
B
It is undisputed that when the board members voted in favor of MP2 thеy were acting in the scope of their employment with the City, and thus
” ‘The construction of a municipal resolution is governed by the rules that govern construction of statutes. [Citation.] The “primal principal of statutory construction requires the ascertainment of the intent of the legislative body [citations] . . . . When . . . there is no direct evidence of the legislative intent, the court turns first to the words of the enactment for the answer and may also rely upon extrinsic aids [citations], including recitals and findings in the enactment.” ’ ” (Torres, supra, 154 Cal.App.4th at pp. 225-226.)
Resolution R-297335 broadly requires that the City “defend, indemnify and hold harmless all past, present and future members of the Retirement Board against all expenses, judgments, settlements, liability and other amounts actually and reasonably incurred by them in connection with any claim or lawsuit arising from any act or omission in the scope of the performance of their duties as Board Members . . . .” (Italics added.) As we concluded in Torres, supra, 154 Cal.App.4th at p. 226, resolution R-297335 shows thе City “did not want any of the . . . members of the SDCERS Board of Administration to incur attorney fees associated with any litigation pertaining to the discharge of their duties.” (Torres, at p. 226) Again, the resolution‘s preamble acknowledges that board members “may, from time to time be subjected to claims and suits for actions taken in [that] capacity,” and “there is a need to protect and encourage individuals who volunteer their time and their talent to serve in the public interest . . . .” (Italics added.)
The lack of discussion on the record by board members about the potential for a criminal action does not change our analysis as the plain language of the resolution controls. As the trial court found, the minutes of board meetings “do not demonstrate [it] was unconcerned about criminal liability” and “the City has not established that the comments made at these meetings were communicated to and considered by the City Council or, even if they had been, what effect they might have had on the Council.” Further, we reject the argument that the resolution‘s reference to “claim or lawsuit” indicates the intent to limit its reach to civil actions. (See, e.g., Lexin, supra, 47 Cal.4th at p. 1075, fn. 13 [criminal action referred to as a “claim“]; Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) 529 U.S. 765, 771 [146 L.Ed.2d 836, 120 S.Ct. 1858] [criminal action referred to as a “lawsuit“].)
We conclude resolution R-297335 cannot reasonably be read to exclude criminal actions.8 If that is what the City intended, it should have said so, and in that instance perhaps the board members would not have taken a risk by acquiescing to the City‘s proposed MP2.9
C
Additionally, the City makes much of comments in the court‘s order pertaining to the burden of proof under
The City submits that the italicized language rewrote
In light of resolution R-297335, the court‘s assessment that the City could not arbitrarily deny a defense under
We need not resolve the issue, however, because we may affirm the judgment on the alternative ground the board members satisfied their burden of showing the city council did sufficiently comply with the procedural safeguards of
At the first hearing, the board members argued the city council implicitly satisfied the criteria of
The board members’ supplemental brief states: “The [original] [t]entative [r]uling . . . relies on the factual premise that the City Council considered Plaintiffs’ indemnification only prospectively and abstractly, that the City had no opportunity to assess the nature of the criminal charges filed against Plaintiffs and their defense thereto, and that [resolution] R-297335 is the only ordinance or resolution reflecting the City‘s consideration and intent with respect to these circumstances. As will be shown . . . , however, in 2006 the City specifically considered [resolution] R-297335 as providing for reimbursement of Plaintiffs’ attorneys’ fees in the [criminal action] and ratified this coverage through an additional resolution, R-301414. These actions of the City Council suffice to meet any requirements of section 995.8, particularly in light of the council‘s own creation of MP2 and its full knowledge and approval (in fact, direction) of the actions of the [b]oard members that led to the [criminal action] and [resolution R-297335].”
The board members submitted evidence that in a March 2006 city council meeting, Aguirre urged it to rescind resolution R-297335 retroactively. He argued the board members should be responsible for their own criminal wrongdoing or the board would be robbed of its independence. At an April 2006 city council meeting, Aguirre complained the resolution gave the board a “blank check,” “irrespective of criminal or civil, with no limitation on how much money they could charge.” He warned the city council that unless it rescinded resolution R-297335 retroactively, it would be “a ratification of the original decision to say, go ahead and take the risk of violating the law, we[‘]ll indemnify you if you[‘]re prosecuted.”
A majority of the city council declined to rescind resolution R-297335 retroactively. One council member remarked, “The way I was brought up, if you make a promise or a contract or an agreement, then you stand by it. And I don[‘]t believe in changing the rules in the middle of the game. . . . It[‘]s really about these individuals who are placed on the board with an understanding that this resolution was in effect.” In May 2006 the city council adopted resolution No. R-301414, which repealed resolution R-297335 prospectively, for conduct of board members occurring after April 18, 2006, and
Further, in July 2007, while the criminal action was still pending, Aguirre sent the mayor and the city council a memorandum again urging the retroactive rescission of resolution R-297335. Aguirre advised the resolution “granted [SDCERS] [b]oard [m]embers complete and total indemnity, including indemnity for criminal acts.” It is undisputed that no such action was taken.
In its responsive supplemental brief, the City responded to the board members’ argument. The City cursorily argued the city council‘s 2006 action did not satisfy
At the second hearing, one of the board members, Torres, sought to clarify that the court determined the board members met their prima facie burden of proving the City‘s compliance with the safeguards of
The court responded, “I think he‘s correct.” Although the court‘s order does not expressly refer to the city council‘s 2006 action, any shortcoming in that regard is harmless. “If independent review establishes the validity of the judgment, then the error is harmless.” (Byars v. SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1146 [135 Cal.Rptr.2d 796].) The record shows the board members met their burden of proving entitlement to judgment as a matter of law based on the City‘s implicit compliance with
Moreover, contrary to the City‘s suggestion, the language of
III
Application of City of Bell v. Superior Court
While this appeal was pending, another appellate court decided City of Bell v. Superior Court (2013) 220 Cal.App.4th 236 [163 Cal.Rptr.3d 90] (Bell). The Bell court held a public entity may only provide a defense for a public employee in a criminal action if the requirements of
We requested and received supplemental briefing from the parties regarding the application of Bell to this case. After considering the supplemental briefing, wе conclude Bell is factually and procedurally distinguishable because, in Bell, the employee requesting a defense was alleged to have committed theft-related crimes against his city employer; the employee based his defense request on a general indemnification clause in his employment contract; and the city employer denied the defense request because the employee‘s acts were not within the course and scope of his employment, he was alleged to have acted with fraud, and providing him a defense would have created a conflict of interest betwеen him and the city employer. (Bell, supra, 220 Cal.App.4th at pp. 241, 243-244, 261.) In contrast, the board members were not accused of theft-related crimes; the City was not a victim, but rather solicited the approval of MP2; the board members based their defense request on a resolution the City passed to specifically provide them with a defense to any claim or lawsuit arising from their approval of MP2;
DISPOSITION
The judgment is affirmed. Respondents are entitled to costs on appeal.
Nares, J., and McIntyre, J., concurred.
A petition for a rehearing was denied January 22, 2014, and the opinion was modified to read as printed above. Appellant‘s petition for review by the Supreme Court was denied April 16, 2014, S216280.
