(CN) - Sonoma County must face allegations over its decision to strip retirees of lifetime health care benefits, the 9th Circuit ruled Monday, citing recent clarification of California law.
To combat rising health care costs in 2008, the Northern California county limited the benefit to $500 per month for retirees.
In a subsequent federal lawsuit, the Sonoma County Association of Retired Employees claimed that this action breached a decades-old "implicit" agreement.
Back in 1964 and again in 1985, Sonoma had allegedly promised to pay "all or substantially all" of the costs of post-retirement health care benefits for its retirees and their dependents. The association said this promise created a legally binding contract.
U.S. District Judge Claudia Wilken rejected the plaintiffs' first and amended complaints, and refused to allow a third, finding that the county's written and oral promises over the years did not amount to an implied contract.
Meanwhile the 9th Circuit had asked the California Supreme Court to resolve similar claims from the Retired Employees Association of Orange County.
In a footnote to her last ruling in the Sonoma action, Judge Wilken "acknowledged the certified question ... was pending before the California Supreme Court, but did not consider it because both parties had indicated that the certified issue was not relevant," the 9th Circuit's Monday ruling states.
The state Supreme Court eventually 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."
This led the three-judge panel considering the Sonoma case to likewise find that the county may have "used resolutions or ordinances to ratify or approve MOUs (memoranda of understanding) that created contracts for health care benefits and included implied terms vesting those benefits for perpetuity."
"The District Court did not have the benefit of [the state Supreme Court ruling] 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," Judge Sandra Ikuta wrote for the panel. "Accordingly, it was error to dismiss the Association's complaint without leave to amend."
The panel ruled 2-1 to remand the case back to the District Court for second look in light of the recent California Supreme Court ruling.
Posing somewhat of a hurdle to retirees, however, the Orange County ruling also "clarified that a plaintiff claiming the existence of a contract with implied terms carries 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," Ikuta wrote.
Judge Johnnie Rawlinson picked up on this point in a partial dissent, arguing that the plaintiffs have already failed to meet that burden.
"Plaintiff has been given the opportunity to provide - and has provided - resolutions and MOUs to support the allegations in its First Amended Complaint," he wrote. "As the majority acknowledges, the submitted Resolutions and MOUs do not support a plausible allegation that the county approved health care benefits for retirees in perpetuity."
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