Yuba City Unified School Dist. v. Cal. State Teachers' Ret. System ( 2017 )

Filed 12/18/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Yolo)
----
YUBA CITY UNIFIED SCHOOL DISTRICT, C082934
Plaintiff and Respondent, (Super. Ct. No. PT151241)
v.
CALIFORNIA STATE TEACHERS' RETIREMENT
SYSTEM,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Yolo County, Timothy L. Fall,
Judge. Reversed with directions.
Sheppard, Mullin, Richter & Hampton, Raymond C. Marshall and Robert J.
Stumpf, Jr., for Defendant and Appellant.
Kingsley Bogard, Lindsay K. Moore and Ethan Retan for Plaintiff and
Respondent.
1
The California State Teachers’ Retirement System (CalSTRS) appeals from a
decision granting the Yuba City Unified School District’s (District) petition for writ of
mandate and setting aside CalSTRS’s decision to collect overpayments mistakenly made
to some of the District’s retirees. The superior court held that the three-year statute of
limitations set forth in Education Code section 22008, subdivision (c) bars collection of
the overpayments because a 2005 letter CalSTRS sent one of the retirees demonstrated
actual notice of the payment issues. 1 We disagree. The letter does not reflect actual
notice of the specific payment issues raised in this proceeding. We conclude, however,
that inquiry notice would be sufficient to start the limitation period contained in section
22008, subdivision (c). Whether CalSTRS had inquiry notice in this case is a question of
fact that was not addressed at the administrative level or by the superior court. We will
reverse and remand for further proceedings in light of these conclusions.
I. BACKGROUND
“[Cal]STRS is the state agency responsible for managing contributions made by
employees and member school districts to the State Teachers’ Retirement Fund.”
(O’Connor v. State Teachers’ Retirement System (1996) 43 Cal.App.4th 1610, 1614.) As
relevant here, CalSTRS is charged with determining “the appropriate crediting of
contributions between the Defined Benefit Program and the Defined Benefit Supplement
Program.” (§ 22119.2, subd. (f).) CalSTRS is administered by the Teachers’ Retirement
Board (Board). (§ 22200, subd. (a).) The Board may audit the records of a public agency
(§ 22206) and require the county superintendent or any employing agency to provide
pertinent information regarding members (§ 22455).
Pursuant to this authority, CalSTRS conducted an audit of the District that covered
members retiring between the 2002-03 and 2011-12 school years. In 2012, CalSTRS
1 Undesignated statutory references are to the Education Code.
2
issued an audit report that found the District had incorrectly reported certain one-time
payments as creditable to the Defined Benefit Program instead of the Defined Benefit
Supplement Program for members who retired between the 2002-03 and 2008-09 school
years. The types of District payments at issue were: (1) payments of $1,750 upon
retirement and (2) payments of 25 percent of the member’s last year’s base salary. These
reporting errors caused 54 members’ final compensation to be overstated and resulted in
an overpayment to each of these retirees of between $12 and $992 per month. The report
outlined the need for the District to make corrections and explained that CalSTRS would
collect the overpayments pursuant to sections 24616 and 24617. Because the
overpayments were based on erroneous information from the District, CalSTRS would
also seek payment from the District for the difference between the overpayments and the
amount CalSTRS projected it could collect from the members. (§ 24616.5.)
The District and 47 of the retirees requested an appeal of the final audit. 2 They
also moved to dismiss based on the statute of limitations set forth in section 22008. The
motion was based on a letter CalSTRS sent to one of the retirees, Lavaune Bell, on
October 15, 2005, after she withdrew $100,000 from her account. The letter explains that
Bell’s monthly benefit would be changed as the result of either “additional employer
reporting or an internal correction to [her] account.” Further, CalSTRS would deduct 5
percent from her monthly benefit until the overpayment was repaid. The letter was
signed, “Service Retirement.”
A hearing on the District’s appeal and motion to dismiss was held before an
administrative law judge (ALJ) in December 2014. After the hearing, the ALJ issued a
proposed decision denying the appeal and the motion to dismiss. The ALJ found that the
2 One of the retirees died during the course of the proceedings.
3
$1,750 payment was paid to all of the relevant retirees upon retirement, but the 25
percent payment was only at issue for one retiree, Daniel Kohl.
The District no longer contests the merits of CalSTRS’s audit findings, and we
focus our summary of the ALJ’s proposed decision on her ruling on the motion to
dismiss. The ALJ explained that the three-year statute of limitations set forth in section
22008, subdivision (c) began to run on the date the incorrect payment was discovered.
The ALJ summarized the testimony of a CalSTRS Pension Program Manager who
explained that he believed the Sutter County Office of Education was responsible for
initiating the recalculation, 3 and CalSTRS did not audit Bell’s account until 2012. The
ALJ quoted from the manager’s declaration: “ ‘Employers submit earnings and
contribution data through an automated system to CalSTRS. The majority of employers
report their data directly to the county office of education, which is then reported to the
CalSTRS system via a direct reporting portal . . . . Information is then automatically
processed by the CalSTRS system for calculating a benefit. As a result, CalSTRS does
not know the nature of the service performed based upon the reporting; only the
compensation paid, the compensation earnable (full-time equivalent), and the associated
contributions. Unless there is a manual review, such as an audit, of the collective
bargaining agreement or employment contract associated with the individual reporting
lines, CalSTRS cannot verify the nature of the service performed.’ ” Moreover, if an
employer provides additional reporting or if an account is corrected, “ ‘the system
utilized by CalSTRS will create an automatic computer-generated letter.’ ”
The parties agreed that the benefit recalculation set forth in the 2005 letter to Bell
only excluded her 25 percent payment but continued to reflect the $1,750 payment. The
ALJ found “there was not adequate evidence to conclude that the October 15, 2005[,]
3 Both the District and CalSTRS denied responsibility for the recalculation.
4
letter to respondent Bell demonstrated that CalSTRS, in 2005, was made sufficiently
aware of the District’s coding of the 25[ percent] and $1,750 payments to the [Defined
Benefit] Program to put CalSTRS on notice that it needed to take prompt action relating
to all the teacher respondents. On its face, the October 15, 2005[,] letter did not explicitly
refer to either the 25[ percent] payment or the $1,750 payment. It is not clear from that
letter who may have inputted the information into the CalSTRS system that resulted in
the recalculation of respondent Bell’s monthly retirement benefit. Consequently, the
evidence did not establish that when respondent Bell’s monthly retirement benefit was
recalculated in 2005, CalSTRS was aware of the general coding issues surrounding the
25[ percent] and $1,750 payments to trigger the running of the limitations period.”
CalSTRS adopted the ALJ’s proposed decision as its decision on July 9, 2015.
The District filed a petition for a writ of administrative mandate pursuant to Code of Civil
Procedure section 1094.5 seeking to set aside CalSTRS’s decision.
On June 17, 2016, the superior court issued a statement of decision. It explained
that it “adopts the Administrative Law Judge’s finding of fact, but not the conclusions of
law. Whether the 2005 letter constitutes actual or inquiry notice is a conclusion of law.
[¶] The 2005 letter from [CalSTRS] to [Bell] constitutes actual notice to [CalSTRS] of
the payment issues. [CalSTRS]’s actions to seek repayment or otherwise adjust the
alleged overpayments are therefore untimely and must cease.”
On July 27, 2016, the superior court issued a peremptory writ of mandamus and
entered judgment accordingly.
On September 6, 2016, CalSTRS appealed.
II. DISCUSSION
A. Standard of Review
Because CalSTRS’s administrative decision to seek repayment substantially
affects the retirees’ fundamental vested right in the State Teachers’ Retirement Fund to
the amount to which they are entitled by law, the independent judgment standard of
5
review applies. (Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763,
789; O’Connor v. State Teachers’ Retirement System, supra, 43 Cal.App.4th at p. 1620.)
Under this standard, “a trial court must afford a strong presumption of correctness
concerning the administrative findings, and the party challenging the administrative
decision bears the burden of convincing the court that the administrative findings are
contrary to the weight of the evidence.” (Fukuda v. City of Angels (1999) 20 Cal.4th 805,
817.) “[T]he standard of review on appeal of the trial court’s determination is the
substantial evidence test.” (Id. at p. 824.) Additionally, “we are not bound by any legal
interpretations made by the administrative agency or the trial court; rather, we make an
independent review of any questions of law.” (Rand v. Board of Psychology (2012) 206
Cal.App.4th 565, 575.)
B. Statute of Limitations
Section 22008 sets forth the statute of limitations “[f]or the purposes of payments
into or out of the retirement fund for adjustments of errors or omissions with respect to
the Defined Benefit Program or the Defined Benefit Supplement Program . . . :
“(a) No action may be commenced by or against . . . the system . . . more than
three years after all obligations to or on behalf of the member . . . have been discharged.
“(b) If the system makes an error that results in incorrect payment to a
member . . . , the system’s right to commence recovery shall expire three years from the
date the incorrect payment was made.
“(c) If an incorrect payment is made due to lack of information or inaccurate
information regarding the eligibility of a member . . . to receive benefits under the
Defined Benefit Program or Defined Benefit Supplement Program, the period of
limitation shall commence with the discovery of the incorrect payment.
“(d) Notwithstanding any other provision of this section, if an incorrect payment
has been made on the basis of fraud or intentional misrepresentation by a member,
beneficiary, annuity beneficiary, or other party in relation to or on behalf of a member,
6
beneficiary, or annuity beneficiary, the three-year period of limitation shall not be
deemed to commence or to have commenced until the system discovers the incorrect
payment.” (§ 22008, subds. (a)-(d).)
The parties agree that subdivision (c) in particular applies to this proceeding, and
the relevant statute of limitations runs from “the discovery of the incorrect payment.”
(§ 22008, subd. (c).)
1. Actual Notice
The superior court did not exercise its independent judgment to evaluate the
evidence and concluded that whether the 2005 letter constitutes actual or inquiry notice is
a conclusion of law. “Resolution of the statute of limitations issue is normally a question
of fact.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 810.) CalSTRS
agrees with the superior court that the question is one of law and cites the principle that
unless the interpretation of a written instrument turns upon the credibility of extrinsic
evidence, it is a question of law that we review de novo. (Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865-866.) Contrary to what is suggested by this
argument, the letter is not a contract to be interpreted pursuant to the canons of contract
interpretation. The letter is an item of evidence introduced to demonstrate what CalSTRS
knew. In other words, the question before us is not the interpretation of the text of the
letter but whether the existence of the letter demonstrates knowledge on the part of
CalSTRS. We conclude the superior court’s determination that the 2005 letter, as a
matter of law, constituted actual notice to CalSTRS was error. Under the facts presented
here, determining whether the letter triggered the statute of limitations is a question of
fact. The letter refers only to one individual and unspecified “additional employer
reporting or an internal correction to [her] account.” What that reporting or correction
was, beyond what was reflected in the recalculation, is not explained. The letter does not
demonstrate actual notice regarding errors in coding of the $1,750 payments to any of the
retirees or that there was an error in coding of the 25 percent payment as to a different
7
retiree. The letter simply does not inform CalSTRS of the errors at issue in this litigation.
As such, the letter neither constitutes actual notice as a matter of law nor would it
constitute sufficient evidence to support a factual finding of actual notice. The letter is,
however, relevant to the question of whether CalSTRS should have investigated the
District’s reporting practices generally. The critical question in this case is whether
inquiry notice is sufficient to trigger the statute of limitations set forth in section 22008,
subdivision (c).
2. Inquiry Notice
“[T]he standards we employ in interpreting statutes of limitation have been well-
established. Our function, as with the construction of any statute, is to ascertain the intent
of the Legislature so as to effectuate the purpose of the law. In the first instance, we look
to the plain meaning of the statutory language. If further analysis is necessary, we apply
a reasonable and commonsense interpretation, avoiding absurdity. [Citation.] We also
consider the legislative purpose and public policy particularly relevant to statutes of
limitation. In general, the legislative purpose behind such statutes is to prevent plaintiffs
from asserting stale claims. At the same time, public policy favors the resolution of
claims on the merits. Therefore, in ascertaining a limitations period, we must strike a
balance ‘between the public policy favoring extinction of stale claims and that favoring
resolution of disputes on their merits.’ ” (Debro v. Los Angeles Raiders (2001) 92
Cal.App.4th 940, 948-949 (Debro).)
The parties dispute whether the “discovery of the incorrect payment” under
section 22008, subdivision (c) includes inquiry notice. We conclude that it does. “[T]he
term ‘discovery’ is not foreign to California’s statutes of limitation.” (Debro, supra, 92
Cal.App.4th at p. 950.) In this context, the weight of authority interprets the concept of
“discovery” to include inquiry notice. (See, e.g., Pedro v. City of Los Angeles (2014) 229
Cal.App.4th 87, 106 [“[T]he one-year limitations period under Government Code section
3304, subdivision (d)(1) begins to run when a person authorized to initiate an
8
investigation discovers, or through the use of reasonable diligence should have
discovered, the allegation of misconduct”]; Deveny v. Entropin, Inc. (2006) 139
Cal.App.4th 408, 419, 423 (Deveny) [concluding inquiry notice was sufficient to trigger
running of limitations period under statute that provided action must be brought before
“ ‘the expiration of one year after the discovery by the plaintiff of the facts constituting
the violation’ ”]; Debro, supra, at pp. 948, 950-951 [interpreting “discovery” to include
inquiry notice in statute of limitations that commenced “ ‘after the date of discovery by
the official of the state or political subdivision charged with responsibility to act’ ”].)
This interpretation balances the policy of avoiding stale lawsuits with the policy of
providing a reasonable time for the discovery of a claim. (Debro, supra, at p. 950.)
One exception to the weight of authority is Eisenbaum v. Western Energy
Resources, Inc. (1990) 218 Cal.App.3d 314 (Eisenbaum), which is relied upon by
CalSTRS. The court in Eisenbaum held that actual notice was required to trigger the
limitations period under Corporations Code section 25507, subdivision (a) for two
reasons. First, the case involved a fiduciary relationship. The court noted, “Where a
fiduciary obligation is present, the courts have recognized a postponement of the accrual
of the cause of action until the beneficiary has knowledge or notice of the act constituting
a breach of fidelity. [Citations.] The existence of a trust relationship limits the duty of
inquiry.” (Eisenbaum, supra, at p. 324.) Here, the Board has “the sole and exclusive
fiduciary responsibility over the assets of the . . . retirement system” (Cal. Const., art.
XVI, § 17, subd. (a)), but CalSTRS has not demonstrated that the District owed it a
fiduciary duty. The District was required to furnish information required by the Board
(§ 22455), but CalSTRS offers no authority for its suggestion that a statutory requirement
to provide information to a governmental entity is enough to transform the provider of
that information into the agency’s fiduciary. Case law relied upon by the District
suggests it had duties, but not that those duties rose to the level of making it CalSTRS’s
fiduciary. (See City of Oakland v. Public Employees’ Retirement System (2002) 95
9
Cal.App.4th 29, 40 [explaining in parenthetical that “once local agency entered into
[Public Employees’ Retirement System] contract, it, too, had duty to properly classify
employee”].) Second, the Eisenbaum court interpreted the language of the statute at issue
in that case as requiring actual knowledge of the facts: “The critical focus here is found
in the language of the section 25507, subdivision (a), which requires ‘discovery ... of the
facts.’ (Italics added.) The statute requires Eisenbaum’s actual knowledge of the facts
before the one-year statute commences to run. By its plain language, the statute requires
actual knowledge, not just ‘inquiry notice.’ ” (Eisenbaum, supra, at p. 325, fn. omitted.)
Eisenbaum’s discussion of inquiry notice in this context has, however, been subsequently
disregarded as dicta. (Deveny, supra, 139 Cal.App.4th at p. 422.) Because the District
does not owe CalSTRS a fiduciary duty, and we find the discussion of inquiry notice to
be unpersuasive, we decline to apply Eisenbaum to interpret section 22008.
Furthermore, as other courts construing “discovery” to include inquiry notice have
observed, our conclusion is consistent with Civil Code section 19, which reads: “Every
person who has actual notice of circumstances sufficient to put a prudent man upon
inquiry as to a particular fact, has constructive notice of the fact itself in all cases in
which, by prosecuting such inquiry, he might have learned such fact.” (Civ. Code, § 19;
see Deveny, supra, 139 Cal.App.4th at p. 421; Debro, supra, 92 Cal.App.4th at p. 950.)
This statute has also been employed by our Supreme Court to explain its longstanding
recognition that the statute of limitations currently set forth in Code of Civil Procedure
section 338, subdivision (d), 4 governing actions for relief on the ground of fraud or
mistake, begins to run on inquiry notice. (Hobart v. Hobart Estate Co. (1945) 26 Cal.2d
412, 437.) We see no reason that the principles codified in Civil Code section 19 would
4 Code of Civil Procedure section 338, subdivision (d) provides this cause of action does
not accrue “until the discovery, by the aggrieved party, of the facts constituting the fraud
or mistake.”
10
not apply in the present action. The statutory language at issue in this case was added to
the Education Code well after our Supreme Court definitively concluded that “discovery”
includes inquiry notice for the purposes of Code of Civil Procedure section 338,
subdivision (d). (Stats. 1988, ch. 739, § 1 [former § 22007, subd. (c)] [statute of
limitations regarding erroneous payment due to inaccurate information “shall commence
with the discovery of the erroneous payment”].) “Given the Legislature’s presumed
understanding of the judicial interpretation of the term ‘discovery’ in other statutes of
limitation, it is reasonable to assume that it would have used a word other than
‘discovery’ if it intended for the limitations period to commence only upon actual
knowledge of a violation.” (Debro, supra, at p. 953.)
Given the settled meaning of “discovery” in the context of a fraud action under
Code of Civil Procedure section 338, subdivision (d), we must presume the Legislature
understood that inquiry notice also applies to the use of the term “discovery” in section
22008. (See People v. Lopez (2003) 31 Cal.4th 1051, 1060 [“When legislation has been
judicially construed and a subsequent statute on a similar subject uses identical or
substantially similar language, the usual presumption is that the Legislature intended the
same construction, unless a contrary intent clearly appears”].) The Legislature has also
demonstrated that it knows how to require actual notice when that is the desired
construction. For example, Code of Civil Procedure section 338, subdivision (c)(3)(A)
provides that the statute of limitations for an action for the specific recovery of a work of
fine art commences to run on “actual discovery.” This statute further provides that
“actual discovery” does not include constructive knowledge “notwithstanding Section 19
of the Civil Code.” (Code Civ. Proc., § 338, subd. (c)(3)(C)(i).) Section 22008,
subdivision (c) contains no such exception from the concepts of constructive knowledge
and inquiry notice, and we will not provide one.
CalSTRS argues we must give great weight to its interpretation of the statute.
Whether and to what extent we give deference to an agency’s interpretation is situational.
11
(Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 12.) In this
case, no quasi-legislative rule is involved, and the interpretation of section 22008 does
not require any particular administrative expertise. Therefore, we are not obligated to
defer to CalSTRS’s interpretation. (See Yamaha Corp. of America v. State Bd. of
Equalization, supra, at p. 12.) Ultimate responsibility for the construction of a statute
rests with the court. (Id. at p. 7.) This case presents not so much a question of what
“discovery” means in the context of section 22008 as a question of how California law
works regarding inquiry notice generally. The fact that CalSTRS may have interpreted
section 22008, subdivision (c) not to include the concept of inquiry notice does not
persuade us to adopt its interpretation. 5
The superior court did not address the question of inquiry notice and we are not
able to resolve the question because it is a question of fact. “[T]he date that a person in
the exercise of reasonable diligence should have discovered the facts is a question of
fact.” (Pedro v. City of Los Angeles, supra, 229 Cal.App.4th at p. 106.) The superior
court concluded incorrectly that evaluating whether the 2005 letter constituted actual or
inquiry notice was a question of law. A letter describing one error is not sufficient as a
matter of law to put the agency on notice of other errors. Whether the letter provided
inquiry notice turns on the specific facts and context surrounding that letter. Here the
facts as a whole are susceptible to opposing inferences regarding whether they were
sufficient to put a reasonable person on inquiry notice of the overall reporting problems.
Accordingly, this case presents a question of fact. (See Deveny, supra, 139 Cal.App.4th
at p. 430 [concluding that posting information on company’s website and referring
investors to the website for general information was not sufficient for inquiry notice as a
5 While the parties and the superior court are in agreement that the ALJ determined that
actual notice was required, we have not identified any portion of the decision adopted by
CalSTRS that squarely addresses this issue.
12
matter of law but, instead, raises a question of fact].) This question was apparently never
addressed by the administrative decision nor properly addressed by the superior court’s
ruling. For these reasons, it is inappropriate to do as the District argues and imply that
the superior court made a factual finding of inquiry notice. Instead, we will reverse and
remand for further proceedings.
We decline to address CalSTRS’s arguments regarding continuous accrual
because they were not raised in the superior court, and can now be addressed on remand.
III. DISPOSITION
The judgment is reversed and the cause is remanded to the superior court for
further proceedings consistent with the views stated herein. The parties shall bear their
own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
/S/
RENNER, J.
We concur:
/S/
RAYE, P. J.
/S/
MAURO, J.
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