SONOMA COUNTY ASSOCIATION OF RETIRED EMPLOYEES, Plaintiff-Appellant, v. SONOMA COUNTY, Defendant-Appellee.
No. 10-17873
United States Court of Appeals, Ninth Circuit
Argued and Submitted June 13, 2012. Filed Feb. 25, 2013.
ER 281 | 708 F.3d 1109
Raymond F. Lynch, Hanson Bridgett LLP, San Francisco, CA, for Defendant-Appellee.
Before: PROCTOR HUG, JR., JOHNNIE B. RAWLINSON, and SANDRA S. IKUTA, Circuit Judges.
Opinion by Judge IKUTA; Partial Concurrence and Partial Dissent by Judge RAWLINSON.
OPINION
IKUTA, Circuit Judge:
The Sonoma County Association of Retired Employees (Association) sued Sonoma County, alleging that the County had breached its obligation to provide certain vested healthcare benefits in perpetuity. Although the County had not expressly promised to provide these benefits, the Association alleged that it had implicitly done so. The California Supreme Court‘s recent decision in Retired Employees Ass‘n of Orange County, Inc. v. County of Orange (REAOC II), 52 Cal.4th 1171, 134 Cal.Rptr.3d 779, 266 P.3d 287, 289 (2011) recognized that a county may form a contract with implied terms under specified circumstances. In light of REAOC II, the district court erred in dismissing the Association‘s complaint with prejudice.
I
This case arises from the County‘s efforts to reduce its liability for its retired employees’ healthcare benefits, which it has subsidized since at least 1964. In 2007, the County became concerned about the rapidly rising costs of healthcare benefits, which had doubled since 2002. In August 2008, the County‘s Board of Supervisors enacted a resolution to limit the County‘s healthcare benefit contributions to $500 per month for retirees, with a five-year phase-in period. The Association, representing retired County employees, filed suit against the County in 2009 on the ground that the County‘s August 2008 resolution amounted to a breach of both express and implied contracts, and raised numerous other claims including breach of the covenant of good faith and fair dealing, violations of the Contract Clauses of the California and United States Constitutions, promissory estoppel, and violation of due process.
The Association‘s original complaint alleged that, in connection with providing healthcare benefits for retirees over the course of many decades, the County made two different promises to the retirees. First, beginning in at least 1964, the County promised to pay “all or substantially all” of the costs of post-retirement healthcare benefits for its retirees and their dependents. Second, in 1985, the County entered into a “tie agreement,” which promised that the County would treat retirees and their dependents the same as it treated the active management employees with respect to healthcare benefits and the County‘s payment of costs. The complaint alleged that these promises, and the employees’ performance of services in exchange for these promises, created a legally binding contract. The Association further alleged that the County intended these promises to create healthcare benefits that would continue during the lives of the retirees and their dependents.
While this case was pending, another Ninth Circuit panel considered a case raising similar issues. See Retired Emps. Ass‘n of Orange Cnty. Inc. v. Cnty. of Orange (REAOC I), 610 F.3d 1099 (9th Cir.2010). In that case, a group of retired county employees sued the county for changing its longstanding practice of subsidizing retiree healthcare benefits on the ground that the county‘s long-standing practice сreated an implied contract. The district court in that case granted summary judgment in favor of the county, because the county “cannot be liable for any obligation that it did not enter through explicit Board resolution.” Id. at 1101-02. Because the question whether the retired employees and the county had entered into an enforceable contract was a question of state law, the REAOC I panel certified the following question to the California Supreme Court: “Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.” Id. at 1101.
While the certified question from REAOC I was pending before the Cаlifornia Supreme Court, the Association filed an amended complaint in this case, asserting the same causes of action as in the original complaint, but adding more facts and attaching copies of the sixty-eight resolutions, memoranda of understanding (MOUs), and ordinances on which it relied. The Association also stated it would provide evidence of the County‘s intent to provide vested healthcare benefits through testimony of the employees who drafted the County‘s resolutions and policies, and through a member of the Board of Supervisors, who would testify as to the Board‘s promises and intent to provide benefits.
On November 23, 2010, the district court granted the County‘s motion to dismiss the Association‘s amended complaint, this time without leave to amend. The court noted that none of the documents adduced by the Association in connection with its complaint contained the County‘s express agreement to provide healthcare benefits to retirees in perpetuity, which the court had previously held was necessary to form a binding contract between the County and retirees in this context. Given the Association‘s failure on this second try to provide any evidence of an express agreement, the district court denied the Association leave to amend. In a footnote, the court acknowledged the certified question in REAOC I was pending before the California Suprеme Court, but did not consider it because both parties had indicated that the certified issue was not relevant.
The Association appealed both the November 2010 order and the May 2010 order, which became final and appealable when the district court dismissed the case without leave to amend. See Montes v. United States, 37 F.3d 1347, 1351 (9th Cir.1994).
While this appeal was pending, the California Supreme Court issued an opinion responding to the certified question posed by the Ninth Circuit in REAOC I. In REAOC II, the court considered three different issues: (1) whether a county government and its employees can form an implied contract for compensation; (2) if such contracts are cognizable, whether implied contracts can create irrevocable or “vested” rights; and (3) if vested contractual rights for county employees can be implied, whether such rights can include healthcare benefits. See REAOC II, 134 Cal.Rptr.3d 779, 266 P.3d at 291.
Turning to the first question, the court held that “a county may be bound by an implied contract (or by implied terms of a written contract), as long as there is no statutory prohibition against such an agreement.” Id. 134 Cal.Rptr.3d 779, 266 P.3d at 294. The court decided that it need not determine whether the county “may form an implied contract with its employees on matters of compensation” because the retirees took the position that they had an express contract and were “seeking recognition only of an implied term.” Id. 134 Cal.Rptr.3d 779, 266 P.3d at 295 (first emphasis addеd). According to the court, implied terms “stand on equal footing with express terms,” so long as they do not conflict with the express terms. Id. 134 Cal.Rptr.3d 779, 266 P.3d at 290 (internal quotation marks omitted).
The court then considered the extent to which
Having concluded that a court can infer contractual rights from legislation when the legislature‘s intent is clear, the court then considered whether it was “impermissible to infer vested contractual rights.” Id. 134 Cal.Rptr.3d 779, 266 P.3d at 297.
Finally, the court considered the County‘s arguments that various other statutes prohibited public entities from including implied terms relating to healthcare benefits in employment contracts. The court rejected each of these arguments based on a close reading of the specific terms of the statute. See id. 134 Cal.Rptr.3d 779, 266 P.3d at 299-301.
The California Supreme Court concluded that “under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution.” Id. 134 Cal.Rptr.3d 779, 266 P.3d at 301. However, the court declined to reach the merits of the case, stating that “[w]hether those circumstances exist in this case is beyond the scope of the question posed to us by the Ninth Circuit.” Id.
III
We now consider the Association‘s appeal from the dismissal of its complaint in light of the guidance provided by REAOC II.2 “We review de novo the dismissal of a complaint for failure to state a claim.” Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir.2010). While a complaint does not require “detailed factual allegations,” it “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). The plausibility standard “is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant” is liable. Id. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for thе misconduct alleged.” Id.
A
Here, in order to survive a motion to dismiss, the Association‘s complaint must plausibly allege that the County: (1) entered into a contract that included implied terms providing healthcare benefits to retirees that vested for perpetuity; and (2) created that contract by ordinance or resolution. See REAOC II, 134 Cal.Rptr.3d 779, 266 P.3d at 289.
The Association met the first requirement by plausibly alleging that: (1) the County entered into a contract; (2) the contract provided healthcare benefits to retirees; and (3) the contract included an implied term that the benefits were vested for perpetuity. First, the complaint alleges that the County “conveyed its promises and intent to continuously and consistеntly provide vested retiree health benefits” in “Board-ratified Memoranda of Understanding,” among other documents. There is no doubt that the MOUs are contracts. As the California Supreme Court previously explained, “all modern California decisions treat labor-management agreements whether in public employment or private as enforceable contracts which should be interpreted to execute the mutual intent and purpose of the parties.” Glendale City Emps. Ass‘n v. City of Glendale, 15 Cal.3d 328, 124 Cal.Rptr. 513, 540 P.2d 609, 616 (1975); see also REAOC II, 134 Cal.Rptr.3d 779, 266 P.3d at 293 (Where a county “negotiate[s] and approve[s] MOUs with its employee bargaining units ... such agreements are binding and constitutionally protected.” (internal quotation marks omitted)).
The Association‘s amended complaint also plausibly alleges that the County intended these healthcare benefits to vest for perpetuity. The complaint states that the County conveyed this intent “in writing, orally, by implication, and through practice.” The Association supported this allegation with factual matter, including: (1) MOUs, resolutiоns, and other documents establishing the County‘s longstanding course of conduct; (2) allegations that former employees who drafted these documents would testify in support of the Association‘s position regarding the “background, purpose, and intent” of the documents; and (3) statements that at least one former Board member would testify as to the County‘s intent that the benefits vest in perpetuity.4
Taken as a whole, the amended complaint includes factual content that is non-conclusory, more than “merely consistent” with the County‘s liability, and substantial enough to allow a court, accepting the allegations as true, to make a reasonable inference that the County implicitly bound itself to prоvide healthcare benefits to its retirees in perpetuity. See Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted).
But this is not enough to survive a motion to dismiss: the complaint must also plausibly point to a resolution or ordinance that created the contract implying these benefits. See REAOC II, 134 Cal.Rptr.3d 779, 266 P.3d at 294. Specifically, the County‘s resolutions and ordinances may create a contract if the text and the circumstances of their passage “clearly evince” an intent to grant vested benefits, id. 134 Cal.Rptr.3d 779, 266 P.3d at 296 (internal quotation marks omitted), or if they “contain[] an unambiguous element of exchange of consideration by a private party for consideration offered by the state.” Id. In the alternative, the County‘s intent to make a contract by legislation “is сlearly shown” when a resolution or ordinance ratifies or approves the contract. Id.
Nevertheless, in light of REAOC II, we cannot agree with the district court‘s decision to deny the Association leave to amend on the ground that such amendment would be futile. In general, a court should liberally allow a party to amend its pleading. See
These considerations weigh in favor of granting leave to amend here. We may grant leave to amend in situations where the controlling precedents changed midway through the litigation. See, e.g., Moss v. United States Secret Service, 572 F.3d 962, 972 (9th Cir.2009) (granting plaintiffs leave to amend their complaint in light of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), which was decided after the plaintiffs brought suit). As a general rule, “[d]ismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment.” Polich v. Burlington Northern, Inc., 942 F.2d 1467, 1472 (9th Cir.1991).
Nor do any of the other Foman factors weigh against granting leave to amend. Although this litigation has been ongoing for several years, “[t]he mere fact that an amendment is offered late in the case ... is not enough to bar it.” United States v. Webb, 655 F.2d 977, 980 (9th Cir.1981) (quoting 3 Moore‘s Federal Practice § 15.08(4) at 15-102). The County would not be prejudiced, because it should be “fully prepared to litigate the substantive issues” of the claim, given that both the theory and the operative facts of the claim remain the same. Hurn v. Ret. Fund Trust of Plumbing, Heating & Piping Indus. of S. Cal., 648 F.2d 1252, 1254 (9th Cir.1981). Moreover, there is no evidence or allegation of “undue delay, bad faith or dilatory motive” over the course of these proceedings. Foman, 371 U.S. at 182, 83 S.Ct. 227. Accordingly, we conclude that the Association should be given a second chance to amend its complaint in light of REAOC II.
B
The County raises two additional arguments which merit some discussion. First, the County argues that the Association waived its argument about the existence of implied terms because it informed the district court that the certified question in REAOC II was not relevant to this case, and did not raise this argument to the district court after filing its amended complaint. We disagree. As the Association correctly points out, our certified question to the California Supreme Court asked only whether employees could form an implied contract for healthcare benefits. Sеe REAOC I, 610 F.3d at 1101. Based on this question, the Association could reasonably conclude that REAOC II would not address implied terms of express contracts, and therefore the opinion would not be relevant to the district court‘s determination. The Association‘s erroneous prediction does not preclude review here, given that the Association‘s complaint preserved its claim that the County entered into contracts with implied terms. Cf. Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270 (9th Cir.2002) (no invited error where party cited the wrong law as controlling but otherwise discussed applicable law); Portland Gen. Elec. Co. v. U.S. Bank Trust Nat‘l Ass‘n as Tr. for Trust No. 1, 218 F.3d 1085, 1089 (9th Cir.2000) (finding that a question of law was preserved where parties had fully briefed the issue to the court, even though one рarty made an error of legal interpretation).
Second, the County argues that our recent decision in Harris v. County of Orange, 682 F.3d 1126, 1135 (9th Cir.2012) compels us to conclude that notwithstanding REAOC II, a plaintiff cannot claim vested benefits unless it can prove the existence of a contract with express terms. The County is mistaken. The retirees in Harris asserted two claims, one based on an implied promise to subsidize health insurance premiums for its retired employees via a pooling arrangement, and the other based on the county‘s express promise in collective bargaining agreements to provide a monthly grant toward the cost of health insurance. See id. at 1129. Consistent with REAOC II, Harris remanded the claims based on the implied promise to the district court so that it could “assess those claims in light of the California Supreme Court‘s opinion, and coordinate those claims with the REAOC litigation.” Id. at 1134. And, because the retirees had not brought all the relevant express terms before the сourt, Harris dismissed those claims with leave to amend. Id. Harris did not purport to rule on a theory premised on implied terms or to interpret or apply REAOC II in dismissing the claims based on the express written contract; therefore, it does not affect our analysis here.7
IV
The district court did not have the benefit of REAOC II, but in light of its clarification that a public entity in California can be bound by an implied term in a written contract under specified circumstances, we cannot say that the Association‘s amendment of its complaint a second time would be futile. At a minimum, the Association may be able to plausibly allege that the County used resolutions or ordinances to ratify or approve MOUs that created contracts for healthcare benefits and included implied terms vesting those benefits fоr perpetuity. Accordingly, it was error to dismiss the Association‘s complaint without leave to amend.
VACATED AND REMANDED.
RAWLINSON, Circuit Judge, concurring in part and dissenting in part:
I agree with the majority that the district court properly dismissed the Complaint in this case for failure to state a claim. However, I disagree that the district court abused its discretion in denying further leave to amend.
Preliminarily, I do not share the majority‘s view that the Plaintiff plausibly pled a cause of action predicated on an express contract between the employee association and Sonoma County, or that the County impliedly agreed to provide healthcare benefits to retirees into perpetuity. See Majority Opinion, pp. 1113–14 (recognizing that the Plaintiff sought relief predicated on the existence of an express contract); see also Retired Employees Assn. of Orange County, Inc. v. County of Orange (REAOC II), 52 Cal.4th 1171, 134 Cal.Rptr.3d 779, 266 P.3d 287, 295 (2011) (same).
In its opposition to Sonoma County‘s Motion to Dismiss its First Amended Complaint, Plaintiff represented to the court that no implied contract was at issue. Likewise, in a motion memo filed before this court following the REAOC II decision, the Plaintiff characterized its Complaint as alleging that Sonoma County‘s promise to provide healthcare benefits was an implied term of an express contract, not a purely implied contract.
Plaintiff submitted three types of resolutions to support its allegations that an express contract existed between the employee association and Sonoma County. The first type of submitted resolution contains “whereas” clauses generally recognizing the existence of healthcare benefits for retirees. The second type of submitted resolution contains “whereas” clauses recognizing that the County is obligated to pay the majority of its retirees’ medical insurance premiums. The third type of submitted resolution describes the arrangement providing for “tying” of retiree healthcare benefits to the benefits received by active employees.
The whereas clauses relied upon by Plaintiff do not plausibly overcome the presumption against the creation of a contract through legislative action. Indeed, a recital inserted into a document to refer to something that has already occurred does not “create[] legal rights and obligations ...” Emeryville Redevelopment v. Harcros Pigments, Inc., 101 Cal.App.4th 1083, 1101, 125 Cal.Rptr.2d 12 (2002). Rather, such recitals “are given limited effect even as between the parties.” Id. (footnote reference omitted).
The resolutions provided by Plaintiff describe the expenditure of funds to provide healthcare benefits for current employees and retirees. Instead of reflecting the existence of an express contract, the language of the resolutions “declare a policy to be pursued until the legislative body shall ordain otherwise ...” REAOC II, 134 Cal.Rptr.3d 779, 266 P.3d at 295.
For similar reasons, the Memoranda of Understanding (MOUs) cannot overcome the presumption against inferring an express contract on the part of the government to provide healthcare benefits for retirees in perpetuity. Importantly, Plaintiff acknowledges the lack of “explicit promises that benefits will be paid in perpetuity.” Instead, Plaintiff relies on the absence of durational language in the MOUs to infer a commitment for the payment of lifetime benefits. However, we rejected this very argument in Harris v. County of Orange, 682 F.3d 1126, 1135 (9th Cir.2012) (“[T]he durational clause surely cannot be the source of a claim that the benefits survive indefinitely.“). Rather, the existence of a durational clause itself plainly negates the premise of perpetual duration.
Finally, Plaintiff‘s anticipated reliance on testimony from County Board members and County administrators would be futile. “Under California law, in the public employment context, a contract with employees must be created by a resolution or ordinance formally enacted by a majority of the Board of Supervisors.” Id. at 1134 (citations omitted) (emphasis added). Anecdotal evidence from county administrators and board members is no cognizable substitute. See 4 McQuillin Municipal Corporations § 13.1 (3d ed. 2012) (“A public corporation may only act as a body, properly convened and functioning as such; separate individual action of its members is ineffectual“) (footnote reference omitted); see also Cook v. City of Addison, 656 S.W.2d 650, 657 (Tex.Ct.App.1983) (“Statements by individual members of a council or board are not binding on a governmental body which may act only in its official capacity....“) (citations omitted); Minnesota Cent. R.R. Co. v. MCI Telecomms. Corp., 595 N.W.2d 533, 537 (Minn.Ct.App.1999) (“A governmental entity can only act
Unlike the plaintiffs in Harris, Plaintiff has been given the opportunity to provide—and has provided—Resolutions and MOUs to support the allegations in its First Amended Complaint. As the majority acknowledges, the submitted Resolutions and MOUs do not support a plausible allegation that the County approved healthcare benefits for retirees in perpetuity.
Because Plaintiff has been given the opportunity to amend its complaint and to provide the Resolutions and MOUs that assertedly set forth the healthcare benefits in question, and because those Resolutions and MOUs do not support a plausible allegation to that effect as required by Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937 (2009), Plaintiff‘s “complaint could not be saved by amendment.” Harris, 682 F.3d at 1131 (citation omitted); cf. id. at 1135 (granting leave tо amend the Complaint “to set out specifically the terms of those MOUs on which their claim is predicated“). I am of the view that the district court acted within its discretion when it denied further leave to amend the complaint. See Gardner v. Martino, 563 F.3d 981, 990 (9th Cir.2009) (“A district court does not err in denying leave to amend where the amendment would be futile....“) (citation omitted). I respectfully dissent from the majority‘s contrary conclusion.