Ninth Circuit Permits Plaintiffs One More Chance to Amend Retiree Healthcare Lawsuit

The Ninth Circuit has reversed the District Court’s dismissal of a lawsuit brought by retired employees against their former employer seeking to avoid the reduction of retiree healthcare benefits.  In Sonoma County Ass’n of Retired Employees v. Sonoma County, No. 10-17873 (9th Cir. Feb. 25, 2013), the Ninth Circuit cited and relied on the California Supreme Court’s recent holding that a public agency may form a contract with implied terms with its employees under specified circumstances.  (See Retired Employees Ass’n of Orange Cnty., Inc. v. Cnty. of Orange (REAOC II), 52 Cal. 4th 1171, 1176 (2011))

In 2008, in an effort to reduce Sonoma County’s retiree healthcare costs, the Board of Supervisors adopted a resolution that limited the County’s healthcare contributions to $500 per month per retiree, to be phased in over a five-year period.  A group of retired employees filed suit in 2009, challenging the resolution and alleging, among other things, that the resolution “amounted to a breach of both express and implied contracts.”  The District Court dismissed the Association’s complaint largely because the Association had not identified any resolutions or ordinances creating an express contract to provide certain retiree health benefits in perpetuity.  (The complaint was actually dismissed twice.  The second dismissal, in November 2010, before the California Supreme Court’s decision in REAOC II, was without leave to amend.)

Though the Ninth Circuit agreed with the District Court that the Association had yet to present evidence of a contract requiring the continued provision of retiree health benefits, the court found that the Association should be given a second chance to amend its complaint: “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 for perpetuity.”  Sonoma Cnty., p. 18.

Even if the Association is able to successfully make allegations that survive a motion to dismiss, the Ninth Circuit noted that the Association still bears the “heavy burden of establishing, from statutory language or relevant circumstances, that the public entity intended to create a compensation contract by ordinance or resolution,” and also “that implied terms in that contract provide vested healthcare benefits.”  Sonoma Cnty., p. 18.

Accordingly, the Association will have another chance to amend its complaint.  The case has been remanded to the District Court for continued proceedings consistent with REAOC II.

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