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The Pension Scandals in Sonoma and Marin Counties

Two Case Studies on How Two Counties Purchased Outside Legal Opinions That Delivered Aggressively Self-Serving Interpretations of the Law in Response to Grand Jury Reports That Found That Substantial Pension Benefits had Been Granted Illegally.

Introduction

In California, public pensions are guided by different divisions of the government code. The largest administrator is CalPERS which administers pensions for most cities, some counties and most political districts pursuant to statutes known as The Public Employee’s Retirement Law (PERL).

The County Employee’s Retirement Law (CERL) governs counties, cities and districts that elected to be governed by CERL. These CERL agencies have an administrative agency for their plan that is local and not governed by CalPERS.

This article deals with pension abuses by two separate CERL agencies, the counties of Sonoma and Marin. Each has its own retirement board. In each county, the civil grand jury found serious procedural violations that were preconditions to the adoption of retirement increases:

Grand Jury Report – Marin County

Grand Jury Report – Sonoma County

Each grand jury report documented the grant of pension increases from 2002 through 2008 without providing the board of supervisors (BOS) and citizens mandated actuarial reports estimating the “annual” cost of each enhancement.

Each county obtained outside legal opinions, which committed direct violations of fiduciary duties owed the client (the County) and failed to provide “material matters” to the client as required by the “Rules of Professional Conduct” applicable to California lawyers.

This is the first expository article, specifying the unusual lengths gone to by law firms to aggressively interpret the law to help government agencies, like a county, to protect hundreds of millions of dollars of illegally adopted pension increases.

The Sonoma pension increases were documented by the civil grand jury in 2012. The Marin civil grand Jury report was issued in 2015. On March 9, 2016 a Marin citizen, David Brown, sued the Marin County board of supervisors for its failure to take action to remedy the illegalities found by the grand jury.

On March 23 and March 28 The Marin Independent Journal, the dominant paper in Marin County, printed an article and an editorial, respectively, on the topic.

Pension critic calls for court review of grand jury’s pension probe,” by Nels Johnson, Marin Independent Journal

Marin IJ Editorial: Pension critic doesn’t deserve county’s rebuke,” Editorial, Marin Independent Journal

This analysis specifies how these pension increases almost certainly violated the law, but more importantly, and for the first time, how outside law firms provided questionable legal opinions to protect the illegally granted benefits.

Legal Background

The California Rules for statutory construction clearly show that Government code 7507, herein “7507,” was and is mandatory. Compliance by the Agency legislative body prior to increasing pensions “shall” and “must” occur,  or the increase is void or voidable. Section 7507, as it read from 2000 to 2009 had three distinct mandates.

Mandate one:  The legislature and local legislative bodies (the board of supervisors for counties) shall secure the services of an enrolled actuary to provide a statement of the actuarial impact upon future annual costs before authorizing increases in public retirement plan benefits.

Comments on mandate one:

  • Per Government code section 14 “Shall” is mandatory and “May” is “permissive.” Permissive is another way to say “directory.” “Shall” is used three times in the statute, and without qualification or limitation of any kind.
  • It is the “legislative body” (board of supervisors, city council, district board) that must obtain the actuarial report, not the retirement administrator or board, or even the agency.
  • See also Govt. code 31516: “The board of supervisors shall comply with Govt. code 7507 before… etc.” Govt. Code 31516 was added in 1995 to make certain that CERL retirement administrators required board of supervisors’ compliance before agreeing to accept a new retirement increase.
  • According to Govt. code 14, if the legislature had intended permissive and not mandatory, it would have used “may,” but it clearly did not.

Mandate two: The ‘future annual costs’ shall include, but not be limited to, annual dollar increases or the total dollar increases involved when available.

Comments on mandate two:

  • Govt. code 7507 deals not with “costs,” but increased “annual costs.” If the cost of 2%@50 was $10M a year and it was increased to 3%@50, and the cost of that increase was $5M a year, then the total cost would be $15M a year. The annual cost estimate of the new benefit was $5M.
  • If the new benefit was retroactive for time served, another annual cost for that determination was required.
  • In order to determine the annual costs, the actuary needed the salary and actuarial data for members of each group receiving the increase. For example, if the increase related to both fire and sheriff, salary and actuarial data was required for both groups.
  • The annual cost increases must be stated in “dollar” sums for “any” pension increase.

Mandate three: The future annual costs as determined by the actuary shall be made public at a public meeting at least two weeks prior to the adoption of “any” increases in public retirement plan benefits.

Comments on mandate three:

  • “Any” is clear. Every separate increase for an affected group of members must comply with 7507.
  • The reason for 7507 is to inform the board of supervisors and the public of the budget dollar cost of a new pension benefit; a transparency issue. But also to assure that the constitutional debt limit is not violated by the increase; and, on a common sense level, to see if the new benefit is sustainable.
  • There are statutory requirements for describing agenda items. California Govt. Code Section 11125(b) requires, “The notice of a meeting of a body that is a state body shall include a specific agenda for the meeting, containing a brief description of the items of business to be transacted or discussed in either open or closed session. A brief general description of an item generally need not exceed 20 words.” See also California Govt. Code Section 54954.2(a)(1)(seventy two hour notice). It is insufficient to refer to an agenda or other report to meet the notice requirements. Whether in an open or closed session, a minimum agenda notice regarding pension enhancements would provide as follows: “Item provides annual dollar increase in costs, as determined by an actuary, for retirement increases for X employee categories.

In 2009, the legislature attempted to close loopholes that agency lawyers had devised to evade the “annual cost” revelations required by Govt. code 7507. It amended it to prohibit the use of consent agendas and henceforth required the chief administrative officer of the agency to certify compliance with Govt. code 7507. Like govt. code 41516 of CERL, CalPERS had always required such certification, but not necessarily by the chief administrative officer. The 2009 amendments are persuasive evidence of the mandatory nature of the statute; otherwise, why would the legislature bother to strengthen it?

In both Sonoma and Marin County’s Code of Ordinances there is a code provision mandating that “shall” means mandatory. Like Govt. code 14, the mandated rule of interpretation was not referenced in county obtained legal opinions. That was a travesty. Outside counsel had a duty to reveal that “shall” as used in interpreting the government code was mandatory

The Sonoma County Pension Scandal

In 2012, in response to citizen’s complaints, the Sonoma county grand jury, investigated massive pension increases initiated in 2002 (by 2013, the Stanford Pension Tracker reported that the Sonoma pension deficit has grown to $2.2 billion, including about $500M in pension bonds). At the conclusion of its investigation, the grand jury report concluded: “The CERL requirements for approving the county pension in 2002 do not appear to have been followed.”

Not very dramatic? Right? Well Sonoma County’s response to the grand jury report was spectacular – arguably it was a total confession: “Documents could not be located to demonstrate that the County made the actuarial cost impacts public at a public meeting at least two weeks prior to the adoption of the enhanced retirement benefits.”

But in spite of that admission, the county response, based on a shameless outside legal opinion stated that while the county did not notice and provide the annual cost in dollar terms at a public meeting two weeks prior to approving the retirement enhancements, it had “substantially complied with 7507. In effect, the lawyers said zero compliance equaled substantial compliance.

The outside legal opinion agreed that a 7507 actuarial report had not been made public, and had not even been obtained by the board of supervisors as required by 7507; it referred to two actuarial reports from the files of the Human Resources department (not the board of supervisors as required by 7507) and made the incredible conclusion that those internal records, never shown to the board of supervisors or the public, equaled “substantial compliance” with 7507.

The history of the Sonoma County 2002 pension increases is critically important to prove the concerted power of county staff, unions and board of supervisors to illegally enrich their group by non-adversarial, precise, agreed upon tactics. This is the usual method of so-called collective bargaining in California government.

At the turn of the century there was an open dispute about what determined “pensionable compensation” in CERL agencies like Sonoma County. The California Supreme court cleared up the issue in “The Ventura Decision.” But the Sonoma county lawyers saw a billion dollar opportunity. A “Ventura Decision” law suit was pending in Sonoma County, but of course all of the issues had been decided by the supreme court in the Ventura case.

Eventually, all of the members of the county pension plan (beneficiaries) were made parties to the suit. Plaintiffs and defendants made a detailed written lawsuit settlement that substantially increased pensions, both going forward and retroactively, for every plaintiff and defendant group, including the board of supervisors.

Here is a link to the Ventura Settlement agreement enacted by the Sonoma County Retirement Association’s Board of Directors who do not have the authority under the law to increase pension formulas. That can only be accomplished with a Board of Supervisors resolution adopting the new formulas. Item 8 in the agreement increased benefit formulas for Safety employees and Item 9 increased benefit formulas for General employees.

The board of supervisors did not obtain an actuarial report as required by 7507; therefore it was impossible to notice a public meeting to make the annual cost known to the public prior to adopting the increases, also as mandated by 7507. There is absolutely no case law suggesting even by hint, that 7507 could possibly be “permissive” (directory). As I will show, there was and is substantial case law confirming that 7507 was/is mandatory.

I have been actively observing governmental pension and compensation history since about 2008. The approach used to design the Sonoma county pension scandal is a precise representation of union bargaining in California governmental agencies. Everyone at the table benefited from unanimous compensation increases. In response to the grand jury finding, the successors of the same beneficiary groups that designed the scheme, stuck to the scheme by ignoring the facts and the law, and engaged law firms to provide them legal interpretations that defended their actions, as exemplified in the responses to grand jury findings of substantive compliance with 7507.

Hopefully, this analysis will spark an interest in pension reform in Sonoma county.

The Marin County Pension Scandal

In April 2015, the County of Marin civil grand jury issued a comprehensive report entitled: “Pension Enhancements: A Case of Government Code Violations and A Lack of Transparency.” The report was a precise factual demonstration of 23 violations of the requirements of 7507 by the county.

In particular, the grand jury report focused on the County’s failure to obtain actuarial reports and the failure to notice public meetings to reveal the annual costs of the increases to the public, as required by section 7507. In addition, I note that the facts indicate that not only the public, but the “legislative body” (board of supervisors) was not provided a 7507 estimate of the future costs of  “any” increase as required by 7507 and government code 31516.

The grand jury report indicated that as of its April 2015 publication the most recently available county unfunded pension deficit was $536.8M. The County also had over $100M in pension obligation bonds outstanding.

Citizens for Sustainable Pension Plans (CSPP), a Marin pension reform group, hired attorney Margaret Thum to provide a legal brief outlining the law related to the facts set forth in the grand jury report. The county hired the law firm of Meyers Nave to advise it about its required response to the grand jury report. The Thum opinion was totally honest and accurate, but the board of supervisors refused to read it or to even make it part of the public record. It is debatable, at best, to assert that the Meyers Nave opinion argued for the interests of the county of Marin, its client. An objective reading of the Meyers Nave opinion might instead find that it misrepresented the law and facts and omitted critical statutes and cases.

A review of the Meyers Nave legal opinion makes it clear that it agreed the county had failed to obtain an actuary report setting forth the “annual costs” of  “any” retirement increase discussed in the grand jury report. It admits that no public meeting was noticed or held, where the “dollar amount” of the annual cost for each new benefit was reported to the public, or even to the board of supervisors as required by 7507 and 31516.

But despite these acknowledgements, Meyers Nave argued that the County had “substantially complied” with the statutory requirement. Its contention on the facts was that in 1999 and 2001, the “Mercer” actuarial firm provided the county Human Resources Department (not the board of supervisors or the public as required per 7507) with actuary reports about the proposed increases. I note that the latter of the reports stated that it relied on calendar year 2000 data in making its estimates.

Here is why that is important. In the fiscal year 2001-2002 there was a tech stock market crash. Both PERL and CERL pension plans lost approximately 7% of the value of their assets and failed to earn their 8% assumed rate of return at the time. Generally CERL plans thereby fell short of their target return by 14%. So the use of 2000 data would have substantially understated the cost of any new benefit after 2001-2002. In addition the rate of retirement, salary increases etc. after 2000 would have increased the annual cost of the new benefit. That is why it was necessary to obtain a current actuary report – one that used the most recent data from the past year to provide a report that that produced an accurate “annual cost” dollar amount.

I am not an actuary, but I have reviewed dozens of 7507 actuarial reports. Every one of them provided that after June 30 of a designated year (e.g.2000) the report was no longer valid because the data from the last year was now finalized and available for a current and accurate analysis. That is what actuarial standards required.

Keep in mind that as the grand jury, as did the Sonoma grand jury, found there were no bona fide 7507 actuary reports; only the Mercer reports (which neither the public nor the board of supervisors saw). The board of supervisors did not obtain a valid actuary report setting forth the annual costs in dollar sums for “any” pension increase, and that information was not revealed to the public at a public meeting, so there was NO compliance with 7507. Yet, a law firm conjectured that there was “substantial compliance” when, arguably, there was NO compliance. Did that firm breach its duty to the client, if the client, ultimately, was the citizens of Marin County? It appears that the firm advocated for the staff, unions, and the board of supervisors, the continuing beneficiaries of the illegally adopted pensions, and contrary to the interests of the client.

Follow the Attorneys:

In pension enhancement cases, the process  to comply with 7507 is as follows:

  • The unions ostensibly negotiate with the county for a pension enhancement,
  • they agree on the increased pension and execute a contract (MOU) setting forth the terms,
  • the board of supervisors adopts the MOU,
  • the county informs the Retirement board of the new benefit,
  • the board of supervisors obtains a Govt. code 7507 report determining the annual dollar cost for each new benefit.
  • the county notices a public meeting by an agenda notice that describes that at the meeting the county will reveal the annual dollar cost of each (any, per 7507) pension increase set forth in the MOU’s,
  • that meeting is held at least two weeks prior to adoption of the new benefits,
  • if approved, the county enters into a new or amended agreement with the Retirement Board for the administration of the new pension enhancements.

In the case of “Voters for Responsible Retirement v. board of supervisors, (1994) 8 Cal. 4Th 765, the California supreme court clarified the moment at which the MOU’s that increased pensions were valid contracts. It said: “..section 7507 provides that the local legislative body, before adopting increases in public retirement benefits for its employees, must obtain actuarial evaluations of future annual costs of the plan, and make that cost information public “at a public meeting at least two weeks prior to the adoption of any increases in public retirement plan benefits.”

In the 1994 ruling, the court made it clear that the county, by its board of supervisors could refuse to pursue the new benefit if the 7507 report indicated that the cost was not acceptable to the board of supervisors. Additionally, the court noted that if the board of supervisors refused to adopt the benefit after receiving the 7507 report, the MOU’s were not final because the condition subsequent to validity had not occurred and it was back to the negotiating table to start anew.

The Alleged Violations of Fiduciary Duty in Both Sonoma and Marin Counties

  • The most outrageous fiduciary breach by lawyers for the county in the Sonoma and Marin pension scandals was the evident by-pass of Govt. code 7507. On a risk reward basis it was apparently decided that it was better to risk non-compliance when compared to the knowledge that a 7507 actuary report would reveal. That is, the enhanced plan would reveal a violation of the constitutional debt limit, which would then require a 2/3 vote of the people;
  • The failure of a single county lawyer to advise that in the Voters case the California supreme court had ruled that MOUs between unions and the county granting pension increases were dependent upon board of supervisors compliance with 7507; otherwise there was no binding contract;
  • The assertion that no case law has found that 7507 was mandatory. Clearly the Voters case proves that it was mandatory.
  • In addition to the omission of “Voters” case, note how outside counsel explained Howard Jarvis Taxpayers’ v. Bd. of Supervisors (1996) 41 Cal. App.4th The law provided that a board of supervisors could withhold the power of its retirement board to define retirement eligible compensation that included “flexible payments.” If a board had not denied a Retirement Board the power to set flexible payments as a part of final compensation, then the Retirement Board had that power. That is what it did in this case. This was permitted because 7507 only applies to the legislature and legislative bodies and not retirement boards.
  • The court held that because the consent of the board of supervisors was unnecessary for the retirement board to set flexible payments, there was not a violation of 7507. If board of supervisors’ approval had been required there would have been a violation of 7507 invalidating the increases that resulted. If 7507 was not mandatory, there was no issue for the court to decide. At page 15 of its legal opinion Meyers Nave cites cases unrelated to the Govt. code where the court in those cases discussed whether “shall” as used in the contracts was mandatory. It omitted reference to Govt. Code 14 of the Govt. Code Rules of interpretation that states clearly that “shall” is mandatory.
  • Here is what Meyers Nave told the board of supervisors and citizens about the Howard Jarvis case to imply that it did not support that 7507 was mandatory. It repeated the facts, as I have above, and then said: ”Under the facts of the case, section 7507 was found inapplicable.” What Meyers Nave failed to tell the board of supervisors was that 7507 was inapplicable because it did not involve the board of supervisors, but that if it had, compliance with 7507 was mandatory. Here, let that court explain it: “However, the record demonstrates the change in the retirement system of which plaintiffs complain was not an ‘increase in public retirement plan benefits’ which the board of supervisors may authorize, AND WHICH WOULD SUBJECT IT TO THE REQUIREMENTS OF SECTION 7507 (emphasis mine), but rather a change in LACERA’S method of calculating “compensation earnable”……” What can I say? The omission of the court’s clear statement that 7507 was mandatory for board of supervisors adopted pension increases had the effect of misleading the public as to whether 7507 was mandatory. That gimmick benefited not the client, but the beneficiaries of the illegal pension: the staff, the unions, the board of supervisors. It financially hung the client and citizens out to dry.
  • The legal opinion also does another magical application to the case of California Statewide Law Enforcement v. Department of Personnel Administration 192 Cal. App. 4Th1 (2011). Again, the issue is whether 7507 was mandatory. In the case, CSLEA, a govt. union that had been classified as “miscellaneous” was granted “safety status” with higher pensions by the 1992 legislature. After it became law, the union claimed it was entitled to the new “safety” status retroactively for time served as miscellaneous employees. Arbitration ensued under the “Dills Act” and a judge then ruled that CSLEA was entitled to retroactive safety benefits. DPA appealed. Keep in mind that 7507 applies to the state legislature. It did obtain a 7507 actuary of “annual costs” of the new benefit going forward, but it did not request and did not receive a 7507 report setting forth the “annual costs” of the new benefit for prior service of the employees. Again, let the court say it: “the materials provided to the legislature regarding the bill did not state that the reclassification would be applied retroactively and did not contain a fiscal analysis of the cost of the retroactive application of safety member status for all employees in the unit….” Earlier in regards to what constituted fiscal analysis, the court said: This requirement necessarily includes the obligation to present the Legislature with a fiscal analysis of the cost of the agreement. (See section 7507, sub.(b) (1) “ before authorizing changes in public retirement benefits.” The legislature shall have a “statement of [their] actuarial impact upon future annual costs,…” In its opinion letter, Meyers Nave said: “The case does not address whether section 7507 is mandatory or directory.” In those precise words, no; but it clearly showed that 7507 was the financial information necessary for such action to be valid. The court held that the prospective benefit was legal because of 7507 compliance. Again, the Meyers Nave opinion misrepresented the court’s opinion to support its claim that 7507 was not mandatory.
  • At page 16 of its opinion, Meyers Nave has the nerve to have a whole section entitled: “2. The Legislature Did Not Make The Sections at Issue Mandatory.” It then listed the four Govt. code sections referenced in the grand jury report. This must have been an oversight by Meyers Nave. Govt. code section 14 specifically provides that as used in the government codes: “Shall” is “Mandatory” and “May” is “permissive.” What makes this claim so galling is that Meyers Nave and all of the appellate courts are aware of the Voters case, the Howard Jarvis case, the CSLEA case and Govt. code section 14 and in each and every case assumed without discussion that 7507 was mandatory. There has never been an appellate case where a California attorney had the guts to argue that 7507 was directory. Why? Because such a baseless claim would properly make the firm liable for sanctions. But out of house lawyers hired by cities and counties routinely advise that 7507 is directive and therefore the staff, unions and board of supervisors can continue receiving pensions that were illegally adopted. Then, when a pension reform group like CSPP obtains an honest opinion, the board of supervisors will not even make it part of the record.

The Future for Reform in Sonoma and Marin Counties

I have not spent as much effort discussing the Sonoma Scandal. That is because the staff, unions and board of supervisors in Sonoma have very little opposition to their enjoyment of the Ventura pension gambit. The county has such great pension and other benefit debt, that another serious market downturn will likely force it into a chapter 9 bankruptcy. Then it may renegotiate its debts, reject its defined benefit plans and initiate a plan in bankruptcy that provides reasonable but affordable pensions. But there will be more suffering before that occurs.

In Marin, the situation is quite different. While it does have a pension and other benefit structure that is unsustainable, it has a vibrant pension group, the CSPP and a will to reform. But more importantly it has a gold plated grand jury report that clearly established that massive pensions were granted illegally.

Marin has a local press that has not sold out to the governing agency and is demanding that the grand jury report be given respect. A citizen has filed a civil complaint in Superior court in an attempt to keep the findings of the grand jury from being kicked down the road. He is in pro per and from that point of view is in over his head. But he does have a case. If a couple of local law firms would band together and represent him in the case I believe they would be richly rewarded under the private attorney general theory which provides for attorney fees for any success in the case.

Meanwhile citizens of Marin should hold accountable the present board of supervisors for its part in what I have argued was a bad faith effort to cheat Marin citizens out of the benefits of the grand jury report. They should be replaced by a new board of supervisors which should then terminate the present county administrator and county counsel and replace them with experts who will be contractually bound to truthfulness, transparency and undivided loyalty to the citizens of Marin by carrying out substantial reforms, such as a freeze on salaries until deficits are eliminated.

Conclusion

In my view, there is a serious flaw in the process by which a county hires outside counsel. The law is clear that the client is the county, not the county agent who interacts with the outside law firm. That means that the law firm has an exclusive duty to diligently apply the laws of the state and the county codes when advising the board of supervisors about legal matters. There is a fiduciary duty to do so. The California Rules of Professional Conduct require counsel to advise the client of all facts and law material to the legal matter. Instead, the out-of-house opinions invariably support the staff, unions and board of supervisors, all of whom, in this case, are beneficiaries of the illegally acquired pension enhancements.

Collective bargaining by public employees for salaries and benefits has ruined a once great way of life in California. For those who take up political space by fooling around with pension reform initiatives, it is time to face the substantive issue: A state wide initiative is necessary to remove so-called bargaining for compensation and benefits from the government arena. As the Sonoma, Marin and Pacific Grove examples show, there is no action that is off the table by the lawyers for the government to pursue, protect and enlarge illegally adopted pensions and other benefits. In the meantime the one clear tool of pension reformers is salary control, but it is rarely used.

The idea that some White Knight is going to come along and solve the pension scandal is preposterous, yet that seems to be what everyone is waiting on.

It is so disappointing that government lawyers and law firms that practice in the government area have been willing to aggressively defend what evidence strongly suggests were substantial violations of due process. It will be telling to watch the county staff and board of supervisors unleash their attorneys on Mr. Brown in his meritorious law suit. With hundreds of millions at stake, the ruling group will throw everything at him. Will the citizens come to his aid? The grand jury clearly documented the illegality of the pension increases.

 *   *   *

About the Author:  John M. Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar (#34749) and a member of the “Public Law” section of the State Bar. He is retired and no longer practices law, but has Lexis/Nexis for research. John graduated from San Jose State College with majors in Political Science and Economics (summa cum laude). He then received a JD from The Stanford School of Law and practiced business and trial law for 40 years before retiring. In 1987, he was the founding partner of a Sacramento law firm that he formed in 1987 to take advantage of the increased bankruptcies brought about by the Tax Act of 1986. Although he did not file and manage bankruptcy cases, he represented clients in numerous litigation matters before the bankruptcy court, including several cases before judge Klein, the current judge of the Stockton bankruptcy case. He is an admirer of Judge Klein, for his ability and accuracy on the law. As managing partner, he understood the goals of bankruptcy filings and its benefits and limitations.

Other work by John Moore:

The Mechanics of Pension Reform – State Actions
– Part 1, December 22, 2015

The Mechanics of Pension Reform – Local Actions
– Part 2, January 11, 2016

During 2015 author John Moore published the “final” chapter of “The Fall of Pacific Grove” in an four part series published between October 20th and November 9th:

The Fall of Pacific Grove – A Primer on Vested Rights
 – The Final Chapter, Part 1, October 20, 2015

The Fall of Pacific Grove – The City’s Tepid Defense of the Vested Rights Lawsuit
– The Final Chapter, Part 2, October 27, 2015

The Fall of Pacific Grove – The Judge’s Ruling
– The Final Chapter, Part 3, November 2, 2015

The Fall of Pacific Grove – The Immediate Future
– The Final Chapter, Part 4, November 9, 2015

During 2014 author John Moore published the first chapter of “The Fall of Pacific Grove” in an eight part series published between January 7th and February 24th. For a more complete understanding of the history, read the entire earlier series:

The Fall of Pacific Grove – How it Began, and How City Officials Fought Reform
 – Part 1, January 7, 2014

The Fall of Pacific Grove – How City Thwarted Reform, and CalPERS Squandered Surpluses
 – Part 2, January 14, 2014

The Fall of Pacific Grove – CalPERS Begins Calling Deficits “Side Funds,” Raises Annual Contributions
 – Part 3, January 21, 2014

The Fall of Pacific Grove – Outsourcing of Safety Services Causes Increased Pension Deficits
 – Part 4, January 28, 2014

The Fall of Pacific Grove – Anti-Pension Reform Mayor Claims to Favor Reed Pension Reform
 – Part 5, February 3, 2014

The Fall of Pacific Grove – Privately Owned Real Property are the Only Assets to Pay for Pensions
 – Part 6, February 11, 2014

The Fall of Pacific Grove – The Cover-Up by the City After the Hidden Actuarial Report Surfaced in 2009
 – Part 7, February 18, 2014

The Fall of Pacific Grove – Conclusion: The “California Rule” Cannot Stand

Local Citizen Takes Marin County to Court Over Pensions

Marin County is not the only county in California where pension benefits were increased, retroactively, back when the increased cost was seemed to be easily covered by double-digit returns on pension fund investments. But Marin County is the only county, at least right now, where a private citizen is taking the county Board of Supervisors to court over alleged violations of due process. As reported in the Marin Independent Journal in their editorial of March 28, 2016:

Mill Valley resident David Brown is taking the county to court, asking a judge to decide whether the county Board of Supervisors and other public agencies broke state law in approving workers’ pension enhancements with little or no public involvement in their decision-making process.

The 2014-15 Marin County Civil Grand Jury raised that question in its report, but the most definitive legal finding it made was that the public agencies “appear to have” side-stepped state rules.

The grand jury is not a court of law. On this issue, it raised a valid question, one that deserves a clear ruling.

That’s what Brown is seeking. As a taxpayer, he’s entitled to that and, unfortunately, he has to file a lawsuit to get it. Unfortunately, he got a dose of blowback from the county.

Here is the actual writ that was filed on March 9th, 2016 by David Brown in the CA Superior Court for the County of Marin. Links to all of the exhibits are included at the conclusion of the petition.

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF MARIN

NAME OF PLAINTIFF(S)

DAVID C BROWN

vs

MARIN COUNTY BOARD OF SUPERVISORS AS A GROUP

INDIVIDUALLY:  STEVEN KINSEY, JUDY ARNOLD, KATIE RICE, DAMON CONNOLLY, MATTHEW HYMEL, STEVEN WOODSIDE.

DATED:  March 7, 2016

Table of Contents

  1. Why this writ?
  2. Why this court?
  3. List of interested parties.
  4. Body of petition.
  5. List of Exhibits. 
  1. Standing

My name is David C. Brown. I am not an attorney. I live in the County of Marin at 25 Country Club Drive, Mill Valley, California, 94941. I have lived at this address since 2001. During that time I have paid taxes that have been used for, among other things, public employee salaries, pensions and benefits.

As a result of the improperly/unlawfully granted benefit enhancements I have suffered the following harms: 1) Payment of taxes in excess of what I otherwise would have paid and 2) A reduction in the quality of services from the County as money that should have been used for public services was used instead to pay the unlawfully granted retirement benefits.

Further, where “the question is one of public right and the object of the mandamus is to procure the enforcement of a public duty…” the petitioner “need not show that he has any legal or special interest in the result, since it is sufficient that he is interested as a citizen in having the laws executed and the duty in question enforced …” Green v. Obledo, 29 Cal.3d 126, 144 (1981).

  1. Why This Writ?

I am petitioning for this writ under Section 1085 because there is no plain, speedy and adequate remedy at law. Whether it is categorized as an error of law, a denial of a fair trial, a decision not supported by the evidence, findings not supported by evidence or all of the above, the simple fact is that is that members of the Marin County Board of Supervisors 1) should have recused themselves, 2) were negligent in not considering all the evidence and 3) received biased legal analysis and advice prior to making a decision in the matter.

  1. Why This Court?

On first reading this petition may look like a conflict of interest case better suited to the Fair Political Practices Commission (FPPC) than to Superior Court. That is, in fact, where I began. Last year I submitted a short complaint to the FPPC about the failure to recuse by three members of the Marin County Board of Supervisors (BOS). That complaint was closed. It was lacking in facts and documentation. Since then I have become better informed about the law regarding conflicts and more aware of the broad ramifications of the actions taken (or not taken) by the BOS. The issues involved extend far beyond the failure to recuse and deep into the financial wellbeing of the County. The actions I am requesting from the Court are much broader than simply declaring that members of the BOS were subject to conflict. They are beyond the scope of the FPPC. 

  1. List of interested Parties

Board of Supervisors
Marin County
3501 Civic Center Drive, Suite 329
San Rafael, CA 94903
415-473-7331

Individually:

Marin County Supervisor Steven Kinsey
Marin County Supervisor Judy Arnold
Marin County Supervisor Katie Rice
Marin County Supervisor Kate Sears
Marin County Supervisor Damon Connolly
Steven Woodside, Marin County Counsel
Matthew Hymel, Marin County Administrative Officer

All at:

3501 Civic Center Drive
San Rafael, CA 94903
415-473-7331 

  1. Body of Petition

Background and Facts

In April 2015 the Marin County Civil Grand Jury issued a report (Exhibit 1) in which it found 23 violations of section 7507 (Exhibit 2) of the California Government Code by the County of Marin. (The Grand Jury took care to use the version of 7507 in effect at the time (Exhibit 2A). In its report the Grand Jury issued Findings and Recommendations as required by law.

On June 30, 2015 the Marin County Board of Supervisors addressed the Grand Jury Report. Item number seven on the agenda was:

Request from the County Administrator for Board concurrence and adoption of response to 2014-2015 Grand Jury Report: “Pension Enhancements:  A Case of Government Code Violations and A Lack of Transparency” (April 9, 2015).

Recommended actions: Concur in and thereby adopt response and direct the President to submit the response to the Presiding Judge.

This item was also accompanied by:

  1. Staff Report, (Exhibit 3)
  2. Response, (Exhibit 4)
  3. Attachment (a nineteen-page memorandum from outside counsel, Meyers/Nave.), (Exhibit 5)
  4. Grand Jury Report. (Ex. 1)

Before discussion of item seven began I approached the podium to address the BOS. I read CA Government Code section 87100 which says,

“No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest.”

Also relevant is CA Government Code Section 1090(a):

“Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity.”

I did not read aloud the above section but I reminded the Board that it is the duty of the elected official, not the public, to determine if the official has a conflict.

I stated that Supervisor Kinsey had been a member of the BOS during the period when the benefit enhancements cited by the Grand Jury had occurred. He voted in favor of all of the enhancements.

I further stated that Supervisors Kinsey, Arnold and Rice and County Administrator Matthew Hymel all had a financial interest in the outcome of the Board’s deliberations regarding the Grand Jury report and that they should recuse themselves. I said it was possible that Supervisors Sears and Connolly had conflicts as well, although I was uncertain. I have since learned that Supervisor Connolly had a similar conflict.

Immediately after I spoke, County Counsel Steven Woodside, who had previously recused himself from matters related to the Grand Jury report, addressed the BOS and said,

“There is not a legal conflict that would preclude you, any of you, from participating in a discussion and decision on pension matters, compensation matters etc. even though you may have a personal stake in the matter in-so-far as you may be eligible for a pension, for example. The case that so decided this is a California Supreme Court case. The leading name is Lexin, L-e-x-i-n, makes it very clear that you have a duty to make these decisions. You have a duty to respond to the Grand Jury report. You have a duty to make decisions on compensation, etc. …”

The case to which Mr. Woodside was referring is CATHY LEXIN et al., Petitioners, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; THE PEOPLE, Real Party in Interest. 47 Cal.4th 1050 (2010) 103 Cal.Rptr.3d 767 222 P.3d 214.

(My and Mr. Woodside’s comments can be found beginning at 21:28 of the video of the June 30, 2015 BOS meeting. The link to it can be found at Exhibit 6.)

I had never heard of the Lexin case so I took Mr. Woodside at his word and sat down. None of the supervisors recused themselves nor did Mr. Hymel. The meeting continued.

Legal Issues Presented

Summary of Legal Issues:

  1. Should supervisors Rice, Kinsey, Arnold and Connolly have recused themselves due to conflict of interest?
  2. Should County Administrator Hymel have recused himself due to conflict of interest?
  3. In light of his prior recusal, should County Counsel Woodside have participated in the Board of Supervisors’ discussion, even to the extent of offering an opinion on whether the members of the BOS and Mr. Hymel should have recused themselves?
  4. The memorandum written for the County by Meyers-Nave was to be an “objective legal review” of the Grand Jury report (statement by County Administrator Matthew Hymel at time 25:40 of the June 30 BOS meeting). If it wasn’t, should The County be directed to make available to plaintiff the same amount of funds used for payment to Meyers-Nave to retain an attorney with expertise in the area of statutory processes and procedures involving public sector pensions.
  5. Was the Board of Supervisors negligent in dismissing, and then proceeding to its conclusions, without reading the memorandum from M. Thum, Esq.?

Analysis of Legal Issues

Legal Issue 1: Should supervisors Rice, Kinsey, Arnold and Connolly have recused themselves due to conflict of interest?

As stated above, the controlling code sections in this matter are:

1) CA Government Code Section 87100 and 2) CA Government Code Section 1090.

In responding to the 2015 Grand Jury report, the four supervisors were asked to opine on the Grand Jury’s conclusion that benefit enhancements they themselves are to receive were originally granted unlawfully. The financial interest at stake for each of the four is not trivial. It is in the low hundreds of thousands of dollars.

The membership of the Marin County Employees’ Retirement Association (MCERA) does not consist of a uniform group, all of which does or will receive the same benefits as the supervisors. The membership of MCERA is divided into two mutually exclusive groups. One group (Group A) includes retirees and current employees who do or will benefit from any of the pension enhancements under discussion. Because of the pension tiers in which they participate Supervisors Kinsey, Rice and Arnold are all members of this group. Supervisor Connolly participates in MCERA through a pension tier granted by the City of San Rafael. That tier is also among those cited as questionable by the Grand Jury. An adverse finding in Marin County would have a precedential affect on the grants of pensions in San Rafael, likely affecting Supervisor Connolly’ pension.

The other group (Group Z) includes retirees and current employees who do not and will not benefit from any of the increases under discussion. This group comprises at least a substantial minority of the plan’s members.

Because the pool of funds available for retirement benefits is not infinite, the interests of the two groups are different. A decision to continue to pay unlawfully granted benefits provides advantages to members of Group A while simultaneously causing harm to members of Group Z. Paying out unlawfully granted benefits weakens the financial strength of the retirement plan. This has broad implications.

In his remarks at the BOS meeting County Counsel Woodside stated to the BOS, “You have a duty to make decisions on compensation, etc. …” He then cited the Lexin case, which revolves around Section 1090.

Section 1090 includes section 1091.5(a)(9), the so-called “compensation” exception. It states:

(a) An officer or employee shall not be deemed to be interested in a contract if his or her interest is any of the following:

(9) That of a person receiving salary, per diem, or reimbursement for expenses from a government entity, unless the contract directly involves the department of the government entity that employs the officer or employee, provided that the interest is disclosed to the body or board at the time of consideration of the contract, and provided further that the interest is noted in its official record. 

The decision facing the BOS in responding to the Grand Jury Report was 1) not a decision regarding the making of a contract and 2) not one of compensation. The grant of benefits (i.e., the contract regarding compensation) had been made long ago. Rather, the current BOS was asked to decide whether the BOS in place at the time of the making of the original had followed the required statutes.

The current BOS was responding to a Grand Jury report. The Grand Jury operates pursuant to the penal code. The BOS was asked to make a judicial or quasi-judicial decision about the legality of a previous grant of compensation. The current matter was not itself a compensation matter. County Counsel Woodside’s comment “…having a duty to make decisions about compensation…” was not relevant. The “compensation” exception under Section 1091.5(a)(9) does not apply.

In addition, the supervisors’ interest was not disclosed to the “body or board” at the time of consideration of the “contract” as required by 1091.5(a)(9). Nor was the interest noted in its official record.[1] Nor did the four supervisors disqualify themselves. Nor did the four supervisors refrain from influencing the other members of the Board.

Legal Issue 1 continued:

Had this been a compensation decision, as Mr. Woodside’s statement implied, he would have been correct that the controlling case would be Lexin v. Superior Court (47 Cal.4th 1050 (2010)103 Cal.Rptr.3d 767 222 P.3d 214). Even so, the Lexin case would not have provided an exemption for the officials involved.

Lexin hinges on the so-called “Public Services” exception, not the “compensation” exemption, to Section 1090 as stated in Section 1091.5(a)(3):

(a) An officer or employee shall not be deemed to be interested in a contract if his or her interest is any of the following: (3) That of a recipient of public services generally provided by the public body or board of which he or she is a member, on the same terms and conditions as if he or she were not a member of the body or board.

In its opinion the Supreme Court said,

“… contracts that actually involve unique personal financial interests not shared by the board’s constituency remain prohibited.” (Lexin v. Superior court) (Italics mine.)

In concluding its discussion of the “Public Services” Exception the court in Lexin went on to say:

“Having thus considered the text of the statute, judicial and Attorney General interpretations, and the surrounding statutory scheme, we conclude section 1091.5(a)(3) should be read as establishing the following rule: If the financial interest arises in the context of the affected official’s or employee’s role as a constituent of his or her public agency and recipient of its services, there is no conflict so long as the services are broadly available to all others similarly situated, rather than narrowly tailored to specially favor any official or group of officials, and are provided on substantially the same terms as for any other constituent.” (Italics and bold type mine.) (Lexin et al. page 1092)

In this case, “the service” is the enhanced pension and the conditions specified by the court are not present. The BOS was not making a contract. Even if it had been making a contract, the benefit is not broadly available to all others, or even to almost all others. Tthe constituency divided into “haves” and “have-nots”. Importantly, a benefit to the “haves” is not neutral to the “have-nots”. It causes them harm. The actions by the four Board members cause harm to members of their constituency while benefitting themselves. The public service exception, 1091(a)(3), does not apply in these circumstances.

The four supervisors should have recused themselves. Their failure to do so constitutes a violation of Section 87100 and is not covered by the relevant exemptions to Section 1090.

Legal Issue 1a: Supervisor Kinsey, a special case.

The case for recusal by Supervisor Kinsey is clear but not yet complete. Mr. Kinsey was a member of the BOS that granted every one of the pension enhancements cited by the Grand Jury. He voted for all of them. In addition to the financial conflict highlighted above, by not recusing himself, Mr. Kinsey was acting as judge and jury as to whether he himself had violated the law. This should never occur. Mr. Kinsey should have recused himself on these grounds alone. Petitioner cannot find a case or code section addressing this, perhaps because the idea is so preposterous.

Legal Issue 2: Should County Administrative Officer (CAO) Hymel have recused himself?

Mr. Hymel is a member of MCERA and will benefit directly from the questionable pension enhancements identified by the Grand Jury. Because Mr. Hymel’s compensation is greater than that of the supervisors he stands to receive a commensurately greater incremental benefit. Mr. Hymel, on information and belief, identified counsel to investigate the Grand Jury report and negotiated the terms and compensation for the agreement with counsel. The response to the Grand Jury report was prepared by Mr. Hymel or by an individual under his supervision and with his approval. Mr. Hymel recommended to the BOS the adoption of the draft response to the Grand Jury report. These actions constitute a violation of Section 87100.

Legal Issue 3: Should County Counsel Woodside have participated in the Board of Supervisors’ discussion, even to the extent of offering an opinion on whether the members of the BOS and Mr. Hymel recuse themselves?

Mr. Woodside had previously recused himself from matters related to the Grand Jury report. Mr. Woodside currently receives pensions from both Santa Clara and Sonoma Counties. His Sonoma County pension was found (broadly, as a member of a group; not individually) by the Sonoma County Grand Jury to have been enhanced under the same questionable circumstances as the pension enhancements here in Main County. An adverse finding in Marin County would have a precedential affect on the grants of pensions in Sonoma County, likely affecting Mr. Woodside personally. This is a violation of Section 87100.

Legal Issue 4: The Meyers-Nave (MN) memorandum.

Shortly after the Grand Jury report was released in April of 2015 Citizens for Sustainable Pension Plans (CSPP), a group of which the petitioner is a member, asked the Board of Supervisors to hire outside counsel to review the Grand Jury report. The Board agreed.

Mr. Hymel asked CSPP to provide a list of questions to assist him in selecting counsel. CSPP provided such a list. Some of the questions were answered. Some were not. The single most important question on the list was not answered. The question was this: Who would outside counsel consider as its client? CSPP was trying to determine whether the BOS would be the client or whether the citizens of Marin County would be the client. The two answers had different implications.

The County entered a contract (Exhibit 7) with the firm of Meyers-Nave for up to $40,000. The full amount was spent.

In his comments at the June 30, 2015 BOS meeting Mr. Hymel said, “We used outside counsel because we wanted to have an objective legal review of the Grand Jury report.” (Beginning at 25:40 of exhibit 6). (Italics mine.)

For $40,000 of taxpayer money spent on an objective legal review one would expect to get just that, unbiased work product. One would expect a comparison of both sides of each legal issue followed by a thoughtful analysis of which side had the stronger case. After all, it was taxpayer money that was being spent and it was tens if not hundreds of millions of dollars of taxpayer money that were at stake in the outcome of the analysis.

The MN memo provided nothing of the sort. What the taxpayers got for their money was a one-sided analysis of the issues that in every instance came down on the side of inaction by the BOS and maintenance of the status quo with regard to the unlawfully granted benefits. IN fact, the MN memo never mentioned that there might be another side to any issue. It was, in effect, a brief arguing against the report by the Grand Jury. To highlight just one example, MN’s discussion of whether 7507[2] is mandatory, and its conclusion that it is not, filled almost three single spaced pages. Yet Meyers-Nave did not cite even one of the many cases that could be used to argue that section 7507 is mandatory or that the word “shall” in the statute might actually have its plain English meaning.

If this were an adversarial proceeding, this would have been acceptable. There would have been a comparable brief from the other side. There was not. This was a case of the County using its resources to take one side of an argument when there was no one to take the other side.

The situation was analogous to that of a (conflicted) judge hearing a case but only permitting a brief from one side, the side on which the judge’s interest lies, while at the same time claiming the brief was neutral.

The conflicted position of Mr. Hymel when he hired MN, and the biased nature of the MN memorandum combine to make the MN memo tainted. However, just as a bell cannot be unrung, the memo cannot be unread. A remedy must occur.

Legal Issue 5: Refusal by the Board of Supervisors  to read the memorandum from M. Thum before making its decision.

An attempt was made to present a brief from the other side. The Grand Jury report was released April 16, 2015. The contract with MN is dated June 1, 2015. The MN memo is dated June 24, 2015. As required, it was made available to the public along with the BOS draft response to the Grand Jury report on June 25, 2015, three business days before the June 30, 2015 BOS meeting at which it was discussed. The result was that MN had 23 days to research and draft its memorandum to the BOS.

In anticipation of the MN memo and the BOS draft response to the Grand Jury report, CSPP hired Margaret Thum, Esq. to analyze the two documents and to write a response (Exhibit 8).

The first paragraph of the Thum memo asked the BOS to delay its response to the Grand Jury so that it and interested citizens could “thoughtfully consider and comment upon the current draft of your response to the Grand Jury report.” Extensions to response deadlines are routinely granted by Grand Juries provided there is good cause.

Ms. Jody Morales of CSPP, speaking in open time at the June 30, 2015 BOS meeting, informed the Board of the existence of the Thum memo. She informed the BOS she had a copy of the memo for each of them. She asked the Board to extend her time so she could read the memo to the Board. The Board sat stone-faced. She suggested the BOS take a short break in order to read the memo. The Board again sat stone-faced. In the end, all CSPP could do was submit the memo for the record. This was done. Later in the meeting (1:19:47 of Exhibit 6), during public comment on the item, I said to the Board of Supervisors:

“I want to be very, very clear that if you proceed and make a decision on this report today without reading the seven-page letter that Ms. Morales submitted from our attorney you are choosing, repeat choosing, to ignore a very material piece of evidence.”

The Board proceeded with its public hearing and voted to approve the response to the Grand Jury report as written WITHOUT HAVING READ THE THUM MEMO. Conflicted members of the Board, acting as judge and jury, elected to read only documents arguing for “their” side of the issue. This constitutes negligence on the part of the Board because it ignored evidence it knew was available.

Relief Sought

  1. Order that Supervisors Kinsey, Rice, Arnold and Connolly, County Administrator Hymel and County Counsel Woodside were subject to conflicts of interest and should have recused themselves from participating in the discussion and approval of the response to the Grand Jury report in question.
  2. Order that there was not a quorum for Item 7 at the June 30, 2015 Marin County Board of Supervisors’ meeting.
  3. Order that the Marin County Board of Supervisors’ response to the Grand Jury report is void.
  4. Because of the conflicts demonstrated, the disregard of those conflicts by those involved, the future likely unavailability of a quorum and the willful blindness demonstrated by all five members of the Board of Supervisors in dismissing the Thum memo, order that the Board of Supervisors has forfeited its right to address this matter.
  5. Because the MN memo cannot be unread, order the Board of Supervisors to make available a sum of $40,000, equivalent to that spent on the Meyers-Nave memo (one ten-thousandth of the County’s annual budget), to provide a brief arguing the other side of all relevant issues, along with sufficient time to construct such a brief.
  6. Order that this court will step into the shoes of the BOS and undertake a fare and unbiased analysis of the Grand Jury report. It should rule on all relevant points of law raised by the Grand Jury, Meyers-Nave, M. Thum and other briefs that may be submitted.
  7. If this court concludes that any of the individuals involved were conflicted and should have recused themselves, order that they publicly and individually apologize at a Board of Supervisors meeting as a listed item on the agenda, not as an item on the consent agenda.

Verification:

I, David C Brown, certify that everything I have written in this document is true to the best of my knowledge.

David C. Brown

List of Exhibits

  1.  Grand Jury Report
  2.  Section 7507. 2A Section 7507 then in effect
  3.  Marin County Board of Supervisors Staff Report
  4.  Marin County Board of Supervisors Response to Grand Jury Report
  5.  Meyers Nave memorandum
  6.  Marin County Board of Supervisors meeting June 30, 2015
  7.  Contract with Meyers Nave
  8.  Memo written on behalf of CSPP by Margaret Thum, esq.
  9.  Office of the CA Attorney General, 2010, “Conflict of Interest”

[1] See Exhibit 9, page 67: “An official whose interest falls into one of the “remote interest” categories must do the following: (1) disclose the official’s interest to his agency, board or body, and (2) have the interest noted in the official records of that body. (Section 1091, subd. (a).) Further, the interested official must completely disqualify himself or herself, and must not influence or attempt to influence the other board members. (Section 1091, subd. (c)”

[2] Section 7507: “The Legislature and local legislative bodies shall secure the services of an enrolled actuary to provide a statement of the actuarial impact upon future annual costs before authorizing increases in public retirement plan benefits. … The future annual costs as determined by the actuary shall be made public at a public meeting at least two weeks prior to the adoption of any increases in public retirement plan benefits. (Italics mine.)