john michael jensen, state bar no. 176813 law offices of ...johnmjensen.com/pdf/marzec -...

JOHN MICHAEL JENSEN, State Bar No. 176813LAW OFFICES OF JOHN MICHAEL JENSEN11500 West Olympic Blvd., Suite 550Los Angeles, CA 90064(310) 312-1100

Attorneys for Plaintiffs Robert Marzec,Rachel Healy and Benjamin Esparza,individually and on behalf of a class ofothers similarly situated

CONEakket) COP

Los funtele,s' 3Ni:4$/tor CourtLos OBB.111A-1,

NOV 1 3 2012

John A. Clarice, Executive Officer/Clerk

By K. Bowen, Deputy

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

ROBERT MARZEC, an individual . RACHEL)HEALY, an individual; and BENJAMINESPARZA, an individual; and on behalf of aclass of others similarly situated,

Plaintiffs,

VS.

CALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM (CalPERS),BOARD OF ADMINISTRATION OFCALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM,

Defendants.

Case No.: BC 461887

CLASS ACTION

(Assigned to the Hon. Anthony J. Mohr,Department 309, for all purposes)

PLAINTIFFS' MEMORANDUM OFPOINTS AND AUTHORITIES, ANDDECLARATION OF JOHN MICHAELJENSEN, IN SUPPORT OF MOTION FORECONSIDERATION

[Filed Concurrently with Motion forReconsideration of Court's November 5,2012, Order]

Hearing Date: December 7, 2012Hearing Time: 9:00 amDepartment: 309

Complaint Filed: May 18, 2011

Plaintiffs hereby file their Memorandum of Points and Authorities and Declaration of

John Michael Jensen in support of their Motion for Reconsideration of the Court's November 5,

2012, Order granting CalPERS' Demurrer to First Amended Complaint without leave to amend.

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES AND DECLARATIONOF JOHN MICHAEL JENSEN IN SUPPORT OF MOTION FOR RECONSIDERATION

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTRODUCTION 1

FACTS 3

LAW AND ARGUMENT 5

I. Requests for Reconsideration of Court Orders 5

Different Losses 5

Contract and Insurance Contract Law 6

A. Specific Disclosures Required: New Terms Must Be Accurate and Clear 6

B. Disclosure Technical Words: " 'Service Credit' May Not Benefit You" 7

IV. Unconscionability 11

V. Delayed Accrual" Arguments 13

CONCLUSION 14


TABLE OF AUTHORITIES

California Cases:

M Produce Co. v. FMC Corp.

(1982) 135 Cal.App.3d 473 12-13

Bay Cities Paving & Grading, Inc. v. Lawyers' Mitt Ins. Co.

(1993) 5 Ca1.4th 854 7-8

Burkett v. Continental Cas. Co.

(1969) 271 Cal.App.2d 360 9

Davis v. United Services Auto. Assn.

(1990) 223 Cal.App.3d 1322 6,9-10

Delgado v. Heritage Life Ins. Co.

(1984) 157 Cal.App.3d 262 23-24

Delos v. Farmers Group, Inc.

(1979) 93 Cal.App.3d 642 6-7

Desai v. Farmers Ins. Exch.

(1996) 47 Cal.App.4 th 1110 8

Essex Ins. Co. v. City of Bakersfield

(2007) 154 Cal.App.4 th 696, as modified (Aug. 27, 2007) and review denied,

(Oct. 31, 2007) 7

Graham v. Scissor-Tail, Inc.

(1981) 28 Ca1.3d 807 12

Haynes v. Farmers Ins. Exch.

(2004) 32 Ca1.4 th 1198 9

Hervey v. Mercury Cas. Co.

(2010) 185 Cal.App.4th 954 7

Independent Ass'n u/ Mailbox Center Owners, Inc. v. Superior Court

(2005) 133 Cal.App.4th 396 11


California Cases (continued:

Logan v. John Hancock Mut. Life Ins. Co.

(1974) 41 Cal.App.3d 988 8

Nissel v. Certain Underwriters at Lloyd's of London

(1998) 62 Ca1.App.4 th 1103 6

Parrish v. Cingular Wireless, LLC

(2005) 129 Cal.App.4th 601, as modified on denial of reh'g, (June 17, 2005) and review

filed (June 28, 2005) 12

Perdue v. Crocker National Bank

(1985) 38 Ca1.3d 913 12

Ponder v. Blue Cross of So. Calif

(1983) 145 Cal.App.3d 709 7-8

Powerine Oil Co., Inc. v. Sup. CL (Central Nat'l Ins. Co. of Omaha)

(2005) 37 Ca1.4th 377 8-9

Russell v. Bankers Life Co.

(1975) 46 Cal.App.3d 405 9

University of Judaism v. Transamerica Ins. Co.

(1976) 61 Cal.App.3d 937 10

Waller v. Truck Ins. Exch Inc.

(1995) 11 Ca1.4 th 1 8

Zullo v. Superior Court

(2011) 197 Cal.App.4 th 477 11

California Statutes:

Civil Code, §1644 4, 7

Civil Code, §1654 9

Civil Code, §1861 4, 7

Government Code, §21420 2


California Statutes (continued):

Insurance Code, §10270.3 11

Insurance Code, §10291.5(b)(1) 8

Insurance Code, §10321 11

Treatises:

West's Ann.Cal.Civ.Code, § 1670 11

iv


INTRODUCTION

Plaintiffs ask the Court to reconsider its November 5, 2012, Order on the notice and

disclosure owed Plaintiffs prior to contracting to purchase military/air time. As a counter-

intuitive result of buying military/air time, Plaintiffs suffered undisclosed immediate changes to

their vested IDR rights that increased the risk, cost, allocation, and liability for their Industrial

Disability Retirement (IDR) insurance.

Court's Order. The Court's Order finds that the PERL supports CalPERS'

characterization of the military/air time investments as "normal contributions" in the job, and

therefore the military/air time monies (once on deposit) were available to fund the IDR. The

Court essentially found that the purchase contract disclosure was sufficient to place Plaintiffs on

notice of a future loss of the service credit or investments. However, the Order did not address

that as a result of the purchase contracts, Plaintiffs assumed a greater risk, liability, and cost for

their vested IDR. The Court found that disabled Plaintiffs received the 50% IDR, that "normal

contributions" funded it, and therefore no vested IDR right was reduced.

Reconsideration. Respectfully, Plaintiffs asks the Court to reconsider its Order as new

law and new facts have arisen or become relevant.

Plaintiffs assume for the purposes of this motion that the Court's statutory construction

and the disclosure about the potential future loss of the "service credits" are correct. Based on

those assumptions, Plaintiffs note that CalPERS did not disclose to Plaintiffs that buying the

military/air time immediately, secretly, and disproportionately shifted a larger share of the IDR

risk, cost, and liability onto Plaintiffs. Buying "service credit" without notice of changes to their

vested IDR, Plaintiffs did not reasonably expect to assume the increased liability, risk and

insurance cost. The disproportionate shift in [DR risk from CalPERS (and the employers) onto

Plaintiffs occurred to all purchasers, irrespective of whether they later became disabled. The

military/air time contracts are unconscionable, are subject to rescission, violate insurance law,

and are a product of mistake for all buyers under age 50 with less than 16% years of service.

Benefitting from its silence at Plaintiff's' expense, CalPERS did not disclose that if Plaintiffs

simply waited to buy military/air time until they reached age 50 with 16% years of service, then


Plaintiffs would have not borne any additional increase or shift in IDR liability, risk or cost.'

Alternate Theories of Recovery In First Amended Complaint, Order Addresses Only

One From the beginning, Plaintiffs pled alternative theories of recovery in their Complaint:

The Order addresses the Government Code Section 21420 annuities claim, violations of

the PERL, and causes of action based on statutory construction. In this request for

reconsideration, Plaintiffs are not challenging those rulings. Plaintiffs seek reconsideration of the

rescission and restitution, breach of contract, and equal protection causes of action, in light of the

Court's ruling.2 Essentially. the Court's Order looks at what occurs after CalPERS had the funds

on deposit, but fails to address Plaintiffs claims that prior to contracting CalPERS failed to

disclose the significant IDR changes arising from the military/air time purchase contracts.

In other words, if the Court correctly interpreted the PERL, then Plaintiffs are entitled to

prevail on their breach of contract, rescission and restitution, and equal protection claims because

the military/air time purchase contracts violate contract, disclosure, and insurance law. CalPERS

increased the risk, liability, and cost of Plaintiffs' preexisting vested IDR insurance benefits

without Plaintiffs' knowledge or consent. (See, e.g., First Amended Complaint, 41124, 267-268,

and 396, among other places.) The changes were material. No Plaintiff would have reasonably

agreed to assume more risk, cost, and liability if they had been told that they could simply wait

until age 50 and not suffer a disproportionate risk or reduction.

Institutionally, instead of acting as a risk-spreading hedge mechanism to prevent

I Disabled safety retirees that have reached retirement age and have total service creditthat would give them benefits beyond the 50% IDR allowance (more than 16% years for safetyemployees retiring under a "3% @ 50" pension formula) can take a "service retirement payable'disability allowance". The first 50% of their final compensation is paid as a tax-free IDRallowance, and any benefits in excess of that 50% (based on service credit that exceeds the 50%allowance) are paid as a taxable service allowance. Waiting to age 50 with 16% years of servicecredit ensures they will get full benefit for the air/military time purchased.

2 To the extent that the Court granted demurrer on statutory construction grounds inMarzec, Plaintiffs understand that the appellate court is the proper venue to challenge the Orderand will not argue them in the reconsideration. Several important issues, however, including theundisclosed amendment to the vested IDR, the disclosures, etc., were not resolved in the Court'sOrder in Marzec. Additionally in Andert, Plaintiffs filed their Opposition to Judgment on thePleadings before it had received the Court's Order in Marzec, but anticipated some of theseunresolved issues; however the issues in Andert and this reconsideration are not coextensive.


individual catastrophic loss, CalPERS essentially formulated the purchase contracts to

concentrate and multiply the loss on Plaintiffs who buy "early", forcing an unfair share of injury

onto the weakest injured party (who had sought insurance, not risk) if they are disabled before

age 50 with 163/4 years of service. Procedurally, CalPERS took advantage of its dual roles as sole

provider of disability and service retirements, to write the purchase contracts to benefit itself and

the employers disproportionately, and secretly relieve itself of some of its existing liability.

CalPERS was purporting to sell "increases" for service credit, but the terms were

structured unconscionably to insure CalPERS against having to pay the full cost of Plaintiffs'

already vested IDR coverage. Essentially, CalPERS, sole provider of IDR and service retirement

(two separate systems), benefited itself disproportionately as a result of its dual roles. CalPERS

had become adverse, but CalPERS did not disclose that it was reducing its IDR liability.

FACTS

As police officers and firefighters, Plaintiffs were fully vested in their IDR rights before

they bought air/military time. IDR was the only benefit that Plaintiffs ever fully vested in. From

the first day on their dangerous jobs, Plaintiffs were fully insured. Plaintiff would only contribute

the "normal contributions" towards IDR made in the job so far, and until age 50 when vested in

service retirement. The maximum liability that the Plaintiffs would bear for their IDR was their

"normal contributions" made between the first day of the job and the day they vested in service

retirement at age 50 with 16% years of service. If Plaintiffs had been injured before vesting in

service retirement, CalPERS and the employer were obligated to pay the 50% IDR in full, first

using the "normal contributions" in the job and then using other employer funds. Prior to the

purchase contracts, Plaintiffs were not required to use their own outside funds to pay for IDR.

Plaintiffs, vested in IDR, looked to augment their future service benefits with military/air

time investments. Before and at the time of contracting for the military/air time, CalPERS did

not disclose thatfor those Plaintiffs who bought befive age 50 or had not yet attained 16% years

of service, the military/air time investments immediately increased the risk and liability for IDR.

The Court found that_CalPERS' disclosures in the service credit purchase contracts

provided sufficient notice of the risk oflitture. potential loss of the additional service credits

3PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES AND DECLARATION

OF JOHN MICHAEL JENSEN IN SUPPORT OF MOTION FOR RECONSIDERATION

and the investments. Disclosing a potential future detriment, the ilifarzec disclosure stated:

If you are considering a DISABILITY RETIREMENT, this additional servicecredit may not benefit you. You may request a retirement estimate with andwithout this additional service credit by submitting a CalPERS RetirementEstimate Request Form (MSD 470) along with a copy of this cover letter or usethe Retirement Planning Calculator on our website at http://www.calpers.ca.gov .If you need additional information or retirement counseling, please contactCalPERS at (888) 225-7377.

There is a significant, qualitative difference between (i) telling Plaintiffs they might not

benefit from their service credit investments and (ii) informing them that by purchasing the

service credit, they had thereby amended, limited or waived their vested IDR rights.

The term "service credit" is statutory and technical, given a special meaning. (Civil Code,

§§1644, 1861.) Under the Public Employees Retirement Law ("PERE", Government Code,

§§20000, et seq.), the term "service credit" has no relationship to IDR. IDR is calculated and

paid independently of "service credit". "years of service", or age. In other words, the disclosure

about service credit is totally irrelevant to IDR. The disclosure that "service credit may not

benefit you" cannot put Plaintiffs on notice about any changes in 1DR. Plaintiffs could

reasonably expect that their IDR would remain the same. There was no expectation that their

existing IDR would be funded by Plaintiffs' outside retirement funds.

The purchase contracts change the respective risks, liabilities, and costs of the parties,

and thus amend the existing 1DR insurance. Vested IDR also guarantees members will receive

the IDR without contributing any additional personal funds beyond the member contributions.

If CalPERS wished to increase the risks, liabilities, and cost of IDR to members, it was

obligated to (i) notify those members of the increase and (ii) obtain their knowing consent to

this amendment to their vested 1DR coverage.

CalPERS disclosed at most half the important facts: that the military /airtime investment

might potentially "not benefit" the buyer in the future. CalPERS failed to disclose the other half:

that the vested IDR benefit was immediately amended and reduced, such that Plaintiffs would be

on the hook for more of their [DR risks, liabilities, and cost.

4


LAW AND ARGUMENT

The Marfec Plaintiffs have identified newly relevant case law supporting their position

that the military /air time purchase contracts are illegal for failing to disclose the IDR

amendments that force Plaintiffs to assume a greater risk, liability and cost of the vested IDR.

I. Requests for Reconsideration of Court Orders

Code of Civil Procedure section 1008(a) says:

When an application for an order has been made to a judge, or to a court, andrefused in whole or in part, or granted, or granted conditionally, or on terms, anyparty affected by the order may, within 10 days after service upon the party ofwritten notice of entry of the order and based upon new or different facts,circumstances, or law, make application to the same judge or court that made theorder, to reconsider the matter and modify, amend, or revoke the prior order. Theparty making the application shall state by affidavit what application was madebefore, when and to what judge, what order or decisions were made, and whatnew or different facts, circumstances, or law are claimed to be shown.

Plaintiffs Motion far Reconsideration meets the requirements of Section 1008(a).

First, no written notice of entry of the Court's Order has been served on counsel for

Marzec to date. Therefore, the request for reconsideration is timely.

Second, the Court's Order affects the rights of Plaintiffs and others in that it (i) dismisses

the First Amended Complaint and (ii) grants CalPERS' Demurrer without leave to amend.

Third, Plaintiffs have identified new and different law, facts, and circumstances not

previously considered by the Court that justifies this request for reconsideration.

II. Different Losses

Loss of the purchased service credit is different and separate from the loss arising from

the reduction in the vested IDR. The nature and timing of the damage shows they are different

and independent. The immediate reduction in the IDR benefit (as a result of buying military/air

time before age 50) occurred automatically on signing the purchase contract. 3 The purchase

contract shifts a share of CalPERS' existing disability risk onto the Plaintiff. In effect, CalPERS

becomes a partially insured party, rather than insurer. CalPERS newly has recourse to the

3 Under CalPERS' arguments, Plaintiffs had an immediate right to IDR and only a futurecontingent expectation of a service retirement.

5


Plaintiffs service credit investment to pay a part of the disability costs if Plaintiff becomes

disabled below age 50.4

All safety members under age 50 who bought military/air time suffered an undisclosed

reallocation of the IDR insurance risk, liabilities, and cost. On the other hand, the actual loss of

the investment or service credit only occurred to some buyers: those members who were

disabled under age 50 with less than 16% years of service. The actual loss of the service credit

(or seizure of the investment) occurred later, at the time of disability determination, subsequent

to purchase, and only to buyers who were disabled earlier than age 50 and with less than 16%

years of service credit: Many military/air time buyers who bought under age 50 subsequently

vested in service retirement and did not suffer an investment loss.

III. Contract and Insurance Contract Law

The service credit purchase agreements. IDR amendment, and policies did not disclose

sufficient information to be enforceable.°

A. Specific Disclosures Required: New Terms Must Be Accurate and Clear

The law requires notice of the specific reduction in coverage; a general admonition to

read the policy for changes is insufficient. (Davis v. United Services Auto. Assn. (1990) 223

Cal.App.3d 1322, 1332 [notice sent with renewal of policy inadequate].) The notice of reduced

coverage must be unambiguous; must be conspicuous, plain and clear. (Id.. at 1332-1333.)

Where the new coverage is offered as a substitute to an existing coverage at the option of

the insured, the new coverage cost and benefits must be unambiguous and accurately set forth.

' The amount of the immediate IDR loss could be expressed as the actuarial expectationthat a Plaintiff would be injured between the time of his or her service credit purchase and thetime that the member became fully eligible to benefit from the service credit purchase under aservice retirement (age 50 with 16% years), multiplied by the amount of the investment.

Applying an analogy to life and disability insurance in the private sector, Plaintiffs weralready fully insured for disability. The Plaintiffs sought to buy a separate life insurance annuityfrom the same company. There is no disclosed offset between the two policies. But the insurancecompany secretly reduces the scope of the disability coverage simply because the Plaintiff hasinvested in the life insurance annuity.

Disclosure are required "in context with regard to its attendant function, [regarding] th

circumstances of- the case in which the claim arises and 'common sense.' " (Nissel v. CertainUnderwriters at Lloyd's of London (1998) 62 Cal . App. Li th 1103, 1111-1112, emphasis added.)



(Delos v. Farmers Group, Inc. (1979) 93 Cal.App.3d 642, 665-666.)

The counter-intuitive effect of the purchase contract for "early" buyers is that Plaintiffs

partially coinsured their own disability. There are no clear and conspicuous "exclusionary" terms

disclosing an amendment or reduction of the IDR coverage or increases in risk, liability, or cost.

Increase in Insurance Deductible Amend IDR insurance coverage, require notice.

Without notice, Plaintiffs reasonably expected that their vested IDR coverage would remain

unchanged because they (i) were already fully invested in IDR and (ii) had paid the full employer

and employee liabilities for the additional service credit.

What Constitutes "Conspicuous, Plain and Clear". To be enforceable, a policy

provision limiting coverage otherwise reasonably expected under the policy must be so drafted

that a reasonable purchaser of insurance would have both noticed it and understood it. (Ponder v.

Blue Cross of So. Calif (1983) 145 Cal.App.3d 709, 719; Hervey v. Mercury Cas. Co. (2010)

185 Cal.App.4 th 954, 966 [offset and reimbursement provisions prominently displayed].)

B. Disclosure Technical Words: " 'Service Credit' May Not Benefit You"

CalPERS uses the term "service credit" in a technical statutory form. When interpreting

a contract provision, a court must give its terms their ordinary and popular sense, unless used

by the parties in a technical sense or a special meaning is given to them by usage. (Essex Ins.

Co. v. City of Bakersfield (2007) 154 Cal.App.4 th 696, as modified, (Aug. 27, 2007) and review

denied, (Oct. 31, 2007)) If words are used by the parties in a technical sense, or a special

meaning is given to them by usage, that meaning should be followed. (Civil Code, §§ 1644,

1861.) IDR is not mentioned in the purchase contract. "If you are considering a DISABILITY

RETIREMENT, this additional service credit may not benefit you" does not put a buyer on

notice of (i) immediate change in existing IDR coverage or of (ii) immediate increases in risk,

liability, or cost. The disclosure is not conspicuous, plain and clear to support an exclusion or

limitation of the risk or liability changes to vested IDR coverage upon signing. Plaintiffs

reasonably expect IDR coverage without paying additional private funds.

Ambiguity. An insurance policy provision is ambiguous when it is capable of two or

more constructions, both of which are reasonable." (Bay Cities Paving & Grading, Inc. v.



Lawyers' Mut. Ins. Co. (1993) 5 Ca1.4 th 854, 867, emphasis added, internal quotes omitted.) "A

word that an insured cannot understand is a word of doubtful meaning and ambiguous." (Ponder

v. Blue Cross of So. Calif, supra, at 724, internal quotes omitted.) The language that "service

credit may not benefit you" is ambiguous and capable of many reasonable constructions, but

none is relevant to IDR. IDR is independent of "service credit". If ambiguous, it does not put

Plaintiff on sufficient notice of the terms.

Disclosure in Disability Insurance. A special statute provides that the Insurance

Commissioner "shall not approve" a disability insurance policy form if its provisions are

"unintelligible, uncertain, ambiguous or likely to mislead...." (Insurance Code, §10291.5(b)(1).)

Unexpected Coverage Limitations. "In the case of standardized insurance contracts,

exceptions and limitations on coverage that the insured could reasonably expect, must be called

to his attention, clearly and plainly, before the exclusions will be interpreted to relieve the

insurer of liability or performance." (Logan v. John Hancock Mitt Life Ins. Co. (1974) 41

Cal.App.3d 988, 995, emphasis in original.) CalPERS did not call the increases in 1DR liability,

risk, or costs as a result of the purchase contract to Plaintiffs' attention at all.

"Objectively Reasonable Expectations of Insured" Rule. If the terms have no "plain

meaning", then the policy must be constructed in accordance with the insured's "objectively

reasonable expectations." (Waller y Truck Ins. Exch.. Inc. (1995) 11 Ca1.4 th 1,27-28; Powerine

Oil Co., Inc. v. Sup. Ct. (Central Nat'l Ins. Co of Omaha (2005) 37 Ca1.4 th 377, 404)7 The

7 In Desai v. Farmers Ins. Exch. (1996) 47 Cal.App.4 th 1110, insured paid extrapremiums for a "Value Protection Clause" under his homeowners insurance policy in whichInsurance Co. "guaranteed" to meet "replacement cost" requirements. When a loss occurredexceeding policy limits, Insurance Co. refused to pay more than the policy limits. Insured wasentitled to the full replacement cost because "an objectively reasonable insured layperson wouldbelieve the policy guaranteed replacement coverage, regardless of what the purported policylimits were." (Desai, at 1118.) In Delgado y Heritage Life Ins. Co (1984) 157 Cal.App.3d 262,Delgado claimed disability from injuries suffered before his disability insurance took effect. Thepolicy covered disability from "bodily injury ... occurring while this policy was in force." But italso excluded any "physical condition" for which medical care was recommended within 6months before the policy took effect. This exclusion created an ambiguity because Delgado'sinjuries were suffered more than 6 months before the policy was issued: "An insured reading thepolicy as a layman might reasonably conclude that 'bodily injury' ... is synonymous with'physical condition.' " (Delgado, at 272.)



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objectively reasonable expectation of the insureds was that they would not be liable for or fund

any additional part of their own IDR. They objectively and reasonably interpreted the contracts

to return the investments if they did not properly fund a benefit under law. Under law, the

investments (i) did not fund an increase in the service retirement benefit and (ii) could not fund

the IDR so (iii) they must be returned to Plaintiffs (as the purchase contracts fail as a mistake to

provide the benefits intended). The investments cannot simply be gifted to CalPERS.

Exclusions and Limitations Strictly Construed. Conversely, exclusions and limitations

on coverage are "strictly construed against the insurer and liberally interpreted in favor of the

insured." (Delgado v. Heritage Lift Ins. Co., supra, at 271.) A "coordination provision" reducing

disability income benefits are usually construed liberally in favor of the insured. (Russell v.

Bankers Life Co. (1975) 46 Cal.App.3d 405, 412; Burkett v Continental Cas. Co. (1969) 271

Cal.App.2d 360, 363.) CalPERS' hidden limitation and exclusion of IDR liability should be

strictly construed against CalPERS or voided.

"Contra—Insurer" Rule.. "[A Imbigunies are generally construed against the party who

caused the uncertainty to exist (i.e., the insurer) in order to protect the insured's reasonable

expectation of coverage." (This is the so-called "contra-insurer rule".)(Powerine Oil Co., Inc.,

supra at 391; see also Civil Code, (ti1654.) The purchase agreement should be construed to

prevent an IDR reduction and allow restitution.

"Conspicuous, Plain and Clear Limitations on Coverage" Rule. The final "general

rule" of policy interpretation is that exclusions and limitations on coverage, to be enforceable,

must be "conspicuous, plain and clear." Thus, even if the language used has a "plain meaning"

(Rule #1) and the insured's "reasonable expectation of coverage" can be ascertained (Rule #2), an

exclusion or limitation must be sufficiently conspicuous and plain in terms of its placement and

appearance that "it will attract the reader's attention." (Haynes v Farmers Ins. Exch. (2004) 32

Ca1.4th 1198, 1204.) The IDR amendment was not plain and conspicuous.

Renewal Policies Reducing Existing Coverage. Insurers are required to provide clear,

conspicuous notice in an expected place of any reduction in coverage on renewal of existing

9


policies (Davis v. United Services Auto. As.sin, supra, at 1332.)8

Forfeitures Disfavored. Even if an exclusion or limitation on coverage is "clear and

conspicuous," forfeitures on technical grounds that bear no substantial relationship to the

insurer's risk are disfavored. (University of Judaism v. Transamerica Ins. Co. (1976) 61

Cal.App.3d 937, 942.)

"Gambling" Requires Disclosure of Gamble, Shift of Risk. Plaintiffs were not

gambling. "Gambling" presupposes that the Plaintiff is sufficiently informed. If the real risks are

not clearly disclosed, the buyer does not intend to gamble. Uninformed, the buyer makes a

mistake based on bad information. The mistake voids consent. It is an unconscionable contract.

Plaintiffs were not on actual, constructive, or "inquiry" notice about the IDR reduction

because it was impossible to deduce a logical connection between the purchase of service credits

and the reduction of IDR. 9 At the time of contracting, Plaintiffs could not understand the

complex accountings or counter-intuitive result that CalPERS argues for. CalPERS only

subsequently disclosed it, by implication, in litigation significantly after these events occurred.

No Consideration For Amending IDR. Since Plaintiffs were giving up previously

vested IDR rights, this amendment required consideration. No consideration was provided.

Formal Amendment Required. Any amendment to IDR coverage requires an explicit

amendment to the insurance contract, agreed to by the insured.

8 Davis' original "all-risk" homeowners insurance policy covered earth movementcaused by contractor negligence. Upon renewal, it contained an exclusion for contractornegligence. Accompanying the renewal was a document entitled "Important Notice" mentioning"reductions in coverage." But the notice was ambiguous because this exclusion appeared in thepolicy under the heading "Clarification of Coverage": "By including these exclusions in the'Clarification' section rather than in the 'Reduction' section, (Insurer) Jailed to put the notice ofthe new exclusions in the expected place." As a result, the exclusion was ineffective and the losswas covered under the original "all-risk" policy. (Id. At 1333, emphasis and parentheses added.)

This is especially true when the Plaintiff was only vested in the IDR. It is even truerwhen Plaintiffs could avoid the reduction in IDR by waiting until vested in service retirement.Because one can receive an IDR and a service retirement in conjunction, they are not mutuallyexclusive. In other words, a loss in the service credit does not mean a reduction in the IDR. TheIDR is the more fundamental benefit. Since "service retirement payable disability allowance"means a retiree receives both a 50% IDR and an additional service pension based on the portionof the allowance above 50%, there is clearly no mutual exclusion.

10

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES AND DECLARATIONOF .JOHN MICHAEL JENSEN IN SUPPORT OF MOTION FOR RECONSIDERATION

Mistake in Service Credit Purchase Contracts; No Consent; Rescission. CalPERS

and Plaintiffs suffered from mistake at the time of making the purchase agreements. It was a

mistake of law and fact. If CalPERS had provided adequate warnings, Plaintiffs would have

delayed buying military/air time until age 50. CalPERS had a fiduciary duty to advise members

to delay their military/air time purchase. The mistake voids consent and provide grounds for

rescission.

Insurance Statutes. After issuance, a disability policy shall not be amended, changed,

limited, altered, or restricted by any means other than rider upon a separate piece of paper.

(Insurance Code, §10321.) Amendment of a disability policy after issuance to coordinate

insurance or disability benefits shall be disclosed to the participant prior to enrollment in the

plan. (Insurance Code §10270.3.) The purchase contract fails as an IDR amendment.

IV. Unconscionability

The purchase contracts are contracts of adhesion that allocate the risks of IDR in an

unreasonable or unexpected manner. (West's "Inn.Cal.Civ.Code. §1670; Zullo y Superior Court

(2011) 197 Cal.App.4 th 477.) Foundational contract law holds that any material change made to

Plaintiffs' vested IDR contract rights required knowing consent by Plaintiffs.

The purchase contracts are unconscionable, requiring the Court to inquire beyond the

face of the contract into its commercial setting, purpose and effect at the time entered into. (See

Independent Assin of Mailbox Center Owners, Inc. v. Superior Court (2005) 133 Cal.App.4th

396.) CalPERS and the employers secretly positioned themselves to gain (at Plaintiffs' expense)

from the service credit purchase agreements if Plaintiffs were disabled before 50. CalPERS had

"changed sides" to transfer a disproportionate share of risk, liability, or cost of IDR, without

disclosure, onto the safety Plaintiff if industrially disabled before age 50.

CalPERS took advantage of its dual roles as sole provider of disability insurance and

service retirement (two separate systems). CalPERS purported to sell service credit, but wrote

the terms to insure CalPERS against having to pay the full cost of Plaintiffs already vested

disability coverage. CalPERS did not disclose that the trust fund and the employers were not

acting as fiduciaries or in the members' best interest. CalPERS did not disclose that it


disproportionately transferred Plaintiffs' outside money to itself and the employers, contrary to

the reasonable expectation of the safety officers, and in a counter-intuitive fashion.

There are two alternative analyses for determining unconscionably. (Perdue v. Crocker

National Bank (1985) 38 Ca1.3d 913, 925, fn. 9.) "Roth should lead to the same result." (Id.)

Graham v. Scissor-Tail, Inc. Since the voluntary purchase contract was offered by

CalPERS without opportunities to negotiate, it is an adhesion contract. Since the required IDR

benefit was offered by CalPERS without the ability to negotiate, it too is a contact of adhesion.

(Graham v. Scissor-Tail (1981) 28 Ca1.3d 807, 819.)

Enforcement will be denied if the contract or provision falls outside the reasonable

expectations of the weaker party. (Id. at 820.) Plaintiffs contracted for additional service credit.

The IDR reduction provision lies outside the expectation of the Plaintiffs. Plaintiffs clearly did

not expect that they would be funding their own IDRs with their outside retirement money.

The IDR offset and the loss of the investment were also unduly oppressive and

unconscionable. Shifting a share of the disability risk onto Plaintiffs who buy "early", CalPERS

uses the purchase agreements as hidden "reverse disability insurance" to CalPERS' benefit. (Id.

at 820.) Tt is oppressive and unconscionable.

A & M Produce Co. v. FMC Corp. The procedural component of unconscionability

shows how Plaintiffs were oppressed and surprised. (A & Al Produce Co. v. FAIC Corp. (1982)

135 Cal.App.3d 473.) As the sole provider of IDR benefits and service retirement as well as

service credit purchases, CalPERS has unequal bargaining power over Plaintiffs. There was no

negotiation or bargaining. "'Surprise' involves the extent to which the supposedly agreed-upon

terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce

the disputed terms." (Ibid.) The increase in IDR liability for Plaintiffs, reduction and amendment

to the IDR terms were not mentioned at all, not agreed to. and not considered. The military/air

time purchase contract re-allocates the risks of the IDR in an objectively unreasonable and

unexpected manner. (Id., at 487.)

The lack of mutuality is a basis for finding substantive unconscionability in a contract.

(Parrish v Cingular Wireless, ILL (2005) 129 Cal.App.4th 601. Plaintiffs get no increased IDR

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES AND DECLARATIONOF JOHN MICHAEL ,IENSEN IN SUPPORT OF MOTION FOR RECONSIDERATION

benefit, yet pay thousands of dollars that CalPERS uses to offset its existing IDR liability.

CalPERS is able to obtain a reinsurance or coinsurance or "reverse disability insurance" to its

benefit, increasing the liability of already insured Plaintiffs in a particularly unreasonable

amount, especially in light of its greater bargaining power and CalPERS' reluctance to disclose

the effect or mechanics of "normal contributions" accounting. (A & M Produce, supra, at 487.)

The service credit purchase agreements are unconscionable and should not be enforced.

V. "Delayed Accrual" Arguments

Independently, Plaintiffs assert that the accrual of their causes of action was delayed.

After being retired on disability. Plaintiffs received their 50%1DR. CalPERS never informed

Plaintiffs of any IDR reduction, transfer of their military/air time investments to offset or fund

IDR, or other disclosure or accountings of their contributions. Plaintiffs had no understanding

of the fact that CalPERS were transferring their military/air time investments to the employers

to pay IDR costs until at the earliest after CalPERS explained this in its October 15, 2010,

Demurrer pleadings in the related case of Yost v CalPERS, LASC Case No. BC444842. Prior

to that time, Plaintiffs could not discover and were not put on inquiry notice that they assumed

greater risk, liabilities, costs, or paid more for their IDR.

The Court's Order finds that Plaintiffs received notice of the harm to them at the time

the received their first IDR checks. However, at most this would put Plaintiffs on notice of

CalPERS' seizure of their military/air time investments, not the amendments to vested IDR.

The reduction in IDR is a separate undisclosed, undiscovered wrong that is subject to a

different discovery period, a different accrual period and a different statute of limitations.

Plaintiffs did not first learn that CalPERS charged them higher IDR risks, costs or liabilities or

unilaterally breached their vested IDR rights until less than a year before named Plaintiffs

Robert Marzec and Rachel Healy tiled government claims, making their VCGCB claims timely

and thereby including all Plaintiffs in the proposed class.

The Court's Order rules that Plaintiffs were put on notice of their losses when they

received their first IDR checks and saw they were only for 50% of their final compensation. It

concludes that the proposed class could not include anyone who received his or her initial IDR

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check more than a year before March 24, 2010, when Robert Marzec filed his VCGCB claim.

But receipt of a 50% IDR check would not provide notice of the fact that CalPERS had

breached Plaintiffs' vested IDR rights because the IDR payment was 50%. No IDR reduction,

liability, cost, offset, or accounting was disclosed. At most, the first check would have told

Plaintiffs that they were paid 50% IDR. It would not have told them that they were also being

forced to assume greater liability or costs for their own IDR pensions.

Loss of the value of Plaintiffs' investment is a different cause of action and a different

core set of facts than the claim for breach of vested IDR rights and benefits. CalPERS has tried

to conflate this into a single harm, with a single causation, occurring at a single point in time.

But CalPERS has harmed Plaintiffs in several ways at several times in several different cause

of action. Each is quite different and independent. The Court's Order does not address this.

First, the reduction of the IDR rights occurred at the time each Plaintiff signed his or

her service credit purchase contract. "f he legal liability arose immediately, but was hidden by

CalPERS. Plaintiffs learned the risk in litigation. CalPERS' seizure of the investment funds, on

the other hand, may have occurred at the time of the disability determination or when CalPERS

issued a Plaintiff his or her first IDR check. CalPERS argues that the disability and service

systems are different, but here CalPERS argues that all of the damage arises from one single

event (which CalPERS seems to identify as the disability determination).

Second, the cause of the IDR reduction was CalPERS' unilateral, secret amendment to

existing and vested IDR rights. The loss of military/air time investment funds was caused, on

the other hand, by a safety employee's disability before age 50 or 16% years of service.

Need for Evidentiary Hearing on "Delayed Accrual". The evidentiary issue of

"delayed accrual" could not properly be resolved via CalPERS' Demurrer. An evidentiary

hearing was and is required. Plaintiffs request one.

CONCLUSION

The Marzec Plaintiffs seek reconsideration. The military/air time purchase contracts

secretly amended or limited the costs, liabilities, and risks of Plaintiffs' existing and vested IDR

rights. The unconscionable purchase contracts force Plaintiffs to assume greater IDR risks and to

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Dated: November 13, 2012 s ItsJo 'en Michael Jensen,Attorney for Plaintiffs

pay much more for their IDR allowances than similarly situated co-workers.

CalPERS has breached its statutory duties under the PERL to pay Plaintiffs the vested

IDR benefits they are entitled to without limitation, offset or the payment of additional personal

funds.

Through mistake and failure to disclose, CAPERS has breached the purchase contract

and IDR rights by imposing hidden terms in the military/air time purchase contract. CalPERS

forced unconscionable adhesive service credit purchase contracts on Plaintiffs, secretly

incorporating terms which amend, limit, waive, or increase the risk of Plaintiffs' existing, vested

IDR rights. Those and related violations grant Plaintiffs the right to rescission of the purchase

contracts and restitution of their investment funds, plus statutory interest.

CalPERS has denied equal protection of the laws to Plaintiffs by discriminating against

them to assume greater risks, liabilities, costs or pay more for IDR coverage than similarly

situated co-workers who never purchase military/air time and has denied or reduced the amount

or value of Plaintiffs' vested disability allowance and other rights without due process of law.

The PERI, statutes are defective as failing to g ive proper notice of their effect. CalPERS

secret inclusion of terms in the service contract purchase agreements which have amended,

reduced, offset, or increased the risks of Plaintiffs' vested IDR benefits have significantly

impaired Plaintiffs existing IDR contract rights in violation of the contract clauses of the federal

and state constitutions.

Plaintiffs also assert they are entitled to all other relief pled in the First Amended

Complaint related to their claims for CalPERS' amendments, limitations or reductions to

Plaintiffs' vested IDR benefits.

Plaintiffs respectfully seek reconsideration on these grounds.

Respectfully submitted,

S.s



DECLARATION OF JOHN MICHAEL JENSEN

I, JOHN MICHAEL JENSEN, declare as follows:

1. The statements herein are based upon my personal knowledge and if called to

testify under oath in court I could and would so testify.

2. I am over 18 years old.

3. 1 am licensed to practice law in California and admitted to practice before this

Court. I have been the attorney of record for Plaintiffs Robert Marzec, Rachel Healy, Benjamin

Esparza and the proposed class of persons similarly situated since the outset of this matter.

4. On November 8, 2012, I received a copy of the Court's Order granting CalPERS'

Demurrer to First Amended Complaint without leave to amend. A true and correct copy of that

.Order is attached hereto as Exhibit 1.

5. I noticed that the Order on CalPERS' Demurrer does not address the alternative

theories that Plaintiffs brought before the Court in the First Amended Complaint and in the oral

argument on the Demurrer. The alternative theories fully pled and disclosed in the First

Amended Complaint and oral argument would allow for or compel judgment in favor of the

Plaintiffs.

6. Considering the Court's ruling, I realized that there was substantial additional

legal authority to support Plaintiffs' contention that CalPERS failed to disclose the changes in

risk, liability, costs of IDR in the military/air time purchase contracts as required under the law.

7. I have identified new or different case law, facts, or circumstances supporting the

proposition that Plaintiffs are entitled to rescission and restitution and relief on other causes of

action in the First Amended Complaint when the alternative theories pled are reconsidered in

light of the prevailing law on insurance, contracts, disclosure, and disability, among others.

8. Specifically, I am bringing to the Court's attention the case law regarding

disclosures required when an insurer makes changes to an existing disability or other insurance

policy. I am also bringing unconscionability law to the Court's attention. Both of these areas of

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DATED: November 13, 2012Jo n Michael Jensen

law becomes relevant when viewed in context of the Court's written Order and the First

Amended Complaint.

9. Without waiving any rights or conceding any thcts or law, Plaintiffs are seeking

reconsideration of issues that apparently were inadvertently overlooked in the Order, such that

judgment in Plaintiffs' favor on certain cause of action is appropriate.

10. Reconsideration of the Order is appropriate.

Under penalty of perjury, I hereby declare that all statements made herein of my own

knowledge are true and that all statements made on information and belief are believed to be

true.



EXU I IT 1

. FILEDSuperior Court of California

County of f.os Angeles

NOV 052012 (frje.--

John A. C take, Executive Officer/ Clerk

By ,Deputy. NI. CIIEWkNTES

SUPERIOR COURr OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

ROBERT MARZEC, all individual; RACHEL )MEALY, an individual; and BENJAMIN )

ESPARZA, an individual; and on bchallof a class ))of other similarly situated, )

Plaintiffs,

vs.

CALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM (CalPERS), BOARDOF ADMINISTRATION OF CALIFORNIAPUBLIC EMPLOYEES RETIREMENTSYSTEM,

Defendants,

I. I it trod uction:

Cal PERS administers retirement benefits for employees of the State of California undet

the Public Employees Retirement Law ("PERT"). To increase their monthly benefits at retirement

Plaintiffs Robert Marzee, Rachel Healy and Benjamin Esparza purchased optional additional retirement

benefits in the form of military service . credit. Additional Retirement Service Credit ("ARSC" or "ail

time"), or other Present Value Service Credit ( ''PVSC"). Cal ERS does not include these credits when

calculating retirethent benefits for Industrial Disability Retirement ("IDR"), which occurs when a

employee retires due to injiiries occurring durine the course of a "safety - job. Reeardless of years o

service, IDR. retirement benefits arc automatically paid tax-free at 50% of the employee's rate oi

compensation at retirement. (PAC 4S.)

Case No.: BC461887

ORDER SUSTAINING DEFENDANT'SDEMURRER TO THE FIRST AMENDEDCOMPLAINT WITHOUT I.EAVE TOAMEND

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- I -ORDER SUSTAINING DEI. LNDANT'S DEMURRER TO THE FIRST AMENDED

COMPLAINT WITHOUT LEAVE TO AMEND

ORDER SUSTAINING DEFENDANT'S DEMURRER TO TIIE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

Plaintiffs contend that their purchased credits must be applied regardless of whether thei

retirement is IDR (because of injury) or service-based (at a certain age). Plaintiffs also argue that, sine

CalPERS categorizes IDR payments as a form of workers' compensation for tax purposes (which results

in the benefits , being paid tax-free), they may not char ge Plaintiffs for any share of it. Plaintiffs further

contend that CalPERS overcharges for the service credits by including improper, unrelated "employe'

costs" and an improper surcharge.

While Plaintiffs acknowled ge that CalPERS may use a part of their contributions from their

current jobs to offset the cost of IDR, they claim that CMPERS improperly categorizes their service

credit purchases as contributions from their current jobs, thereby "transforming" those credits into time

served in the current job. Plaintiffs contend that the purchases are contributions from prior jobs, as those

credits are based on service in other positions (i.e. service credit for military service). They base this

argument, in part, on the requirement that the purchase paperwork requires them to certify that they are

purchasing credits for prior service outside their CalPERS jobs.

Thus. Plaintiffs claim CalPERS should characterize the purchased credits as time earned foi

work in former jobs, which they claim would result in additional benefits at IDR retirement. Fat

example, they allege that a fireli ghter (a safet y position) who previously worked with another fir

department will receive credit for that work in the form of an annuity that is paid in addition to his IDR

benefits when he retires due to injury. Ditto for someone who once worked as a technician for anodic

CalPERS employer. However, if that firefighter purchases a service credit for previous time worked

with a non-CMPERS employer, such as the military, those credits are not applied at IDR retirement

Plaintiffs claim the credits for time worked with a non-CalPERS employer should be treated the same a

time worked with a CalPERS employer. (PAC 4,3(k-l).)

Finally, Plaintiffs argue that since they used rolled-over funds from a section 457 deferred

retirement plan to purchase their credits, the credits are subject to the same non-forfeiture provision a.

the 457 funds themselves.

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Plaintiffs filed a putative class action on May 18, 2011 and filed a First Amended Complaint on

February 28, 2012, including causes of action for:

1. Breach of statutory duties;7. Breach of contract;3. Rescission, restitution;4. Breach of fiduciary duties;5. Denial of equal protection;6. Due process violation;7. Equitable relief;8. Declaratory relief;9. Accounting;10. Constitutional impairment of contract;11. Estoppel; and12. Other relief, including attorneys' fees

Defendant CalPERS now demurs to all causes of action and to the class definition, whicl

includes members who have never presented a proper Government Claims Act claim.

II. Discussion:

A. Outline of Relevant PERL Provisions

Pension benefits are based on years of service. Employees working For a CalPERS employer

may purchase additional service credits in order to increase their pension benefits at retirement. Th

service credits are based on the employee's prior service for a non-CalPERS employer, such as fru

military. So, for example, under Govt. Code §21074, an employee covered by CalPERS who previously

served in the military can purchase up to four years of "credit" based on his military service. With

certain exceptions, purchased credits are intended to operate as a -guaranteed return" on the money

invested.

When the employee purchases service credits, the employee is required to pay the cost of th

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ORDER SUSTAINING DEFENDANT'S DEMURRER TO THE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

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employer's increased liability. (Cal. Govt. Code ',i 21052.) I This is known as "cost neutrality. - A

2 employee who purchases credits usin g an installment plan must pay a half-percent surcharge.

3 (§21050(b)).

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5 However, if an employee does not reach retirement :NC, but instead retires due to an industria

6 disability, the employee receives Industrial Disability Retirement HDR) benefits instead of sorvicc-base

7 retirement benefits. An employee retired in 1DR may obtain a refund of his or her purchased service

credits, but must waive the monthly !DR benefits in order to do so. (Govt. Code i';i21153.) If a

employee is disabled and begins to collect 1DR before he or she has finished makin u the installmen

payments for the service credits. he or she mast cancel the remaining installments but may not obtain r

refund of the amount already paid. (Grist. Code i;l21039(a).)

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13 Cal. Govt. Code *21413 permits a 50% payment for IDR:

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Upon retirement. of a local safety member for industrial disability he or she shall receive a

disability retirement allowance of 50 percent of his or her final compensation plus an

annuity purchased with his or her accumulated additional contributions, if any, or, if

qualified for service retirement, he or she shall receive his or her service retirement

allowance if the allowance, al-tor deducting the annuit y , is greater.

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Section 21413 describes two situations in which the employee may receive an annuity in additioi

to IDR: when the employee has made "additional contributions" (this was not available after I 953), anc

when the employee is disabled after service retirement age (54 Neither situation applies to this case.

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member [ ] who elects to receive service credit subject to this section shall contribute,26

accordance with Section 21050, an iumnint equal to the increase ill employer liability, using the payratc

and other factors affecting liability on the date of the request for costin g of the service credit." (Cal

Govt. Code i!;21032.1)-

ORDER SUSTAINING DEFENDANT'S DEMURRER TO 'FIFE FIRSF AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

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Govt. Code § 21420 explains another situation when an annuity might be paid in addition to

2 IDR: when the employee has credits for prior service with another CalPERS employer or job

3 classification:

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If a member retired for industrial disability has made contributions in respect to service

rendered in a cate gory of membership other than the cate gory in which he or she was at

the time he or she suffered the disability or incurred the disease causing his or her

retirement for industrial disability, in addition to the disability retirement allowance to

which he or she is otherwise entitled under this article, he or she shall receive an annuity

purchased with his or her accumulated normal contributions made in respect to service

rendered in the other category of membership.

Plaintiffs want their service credits to be treated as contributions for service outside of CalPERS

However, the annuity §21420 creates covers service only in another "category of membership," meaning

CalPERS membership. If Plaintiffs' service credits all: recognized as credits for service with a non-

CalPERS employer, those credits cannot be used to obtain the §21420 annuity.

Purchased credits are categorized as "normal contributions." (Cal. Govt. Code §§21038, 21053

This essentially means contributions made in the current job. Govt. Code §21418 permits CalPERS

use normal contributions to fund part of IDR. (The other part of IDR must be funded by the CalPERS

employer. (§208084) Thus, permissive service credits, which are categorized as normal contributions]

under §21053, may he used to fund 1DR. Plaintiffs contend that this results in their payin g more for theii

DR, since their contributions are bein g used to fund it. They also contend that this impairs their "vestec

right" to 50% IDR payments, since they are payin g for part of it.

Plaintiffs also contend that tyin g their purchased credits to their current employer is impropci

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Le cut rent job2 ; thus, the punbecause no part of PERE permits the purchase of service credits in t

credits cannot be associated with their current job and must be treats:

is a good reason for this: employers participating in CalPERS are

pensions and bear the risk of liability as to those pensions. If Plaintmama ifs contributions arc not tie(

CalPERS employer, then no employer will he liable for funding their pensions, should they

retirement age.

Stated differently, contributions made in a category other d am that in which the menthe

injured can result in §21420 annuities separate from IDR hecausc they are the result of a se

actuarial calculation for a separate actuarial pool. Contributions genade in the current job, inc

purchased service credits, must be tied to an actuarial pool for vhi h an employer has shoulder

risk. If Plaintiffs are permitted to use their purchased service credit (from non-CalPERS emplo:

to receive an annuity, there is no corresponding CalPERS employer E. iability for that annuity.

More than once, the Legislature has rejected the concept_ of refunding purchase cret

employees on DR. (Reply p. 5, n. 7.) Section 20938, the precleccss- or to §21037, was amended i

to permit such refunds for employees on 1DR, but sunsettcd in 1 9- 84 and was deleted in 2003.

REV Exh. 1, p. 22 & Exh. 3, p. 47.1 In 1991, the Le g islature jccted AB1196, which wou

revived the benefits of §20938 and provided Mr the exact refund P1 --...alintiffs seek here. (Exh. 2, p.,

33, 35.) The Republican Analysis for the Assembly Committee ora Public Employees, Reticent

Social Security noted that the refund was not -actuarially sound (1 h. 2, p. 35.)

B. First Cause of Action - Breach of Statutory Duties

The first cause of action alleges, among- other things, that:

- Govt. Code §20961 "Credit for more than one year of service sl1 I not be allowed for service

in any fiscal year.-

as credits from a prior job. -

responsible for funding ernp

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TO THE FIRST AMENDECOMPLAINT WITHOUT I.EAVE r 0 AMEND

ORDER SUSTAINING DETENDANYS DEMURRER

345. In violation of the laws and re gulations of the Internal Revenue Code, CalPERS is

failing to calculate, cost, treat, account, segregate, and provide the Plaintiffs with the

military time. ARSC and PVSC benefits in accordance with the rules governing

"permissive service credits".

346. In violation of the laws and regulations of the Internal Revenue Code, CalPERS is

overcharging (by, inter alia, adding unrelated costs in the investment and by charging a

fee for installment payments) Plaintiff's for the military tine ,ARSC and PVSC benefits in

violation of the rules governing "permissive service credits".

347. In violation of the laws and re g ulations of the Internal Revenue Code, CalPERS is

failing to treat Plaintiffs' lump sum payments or roll-avers from tax preferred investments

used to invest in military time, ARSC :tat PVSC benefits in accord with the rules

governing tax-preferred investments.

348 In violation of the laws and regulations of the Internal Revenue Code, CalPERS is

failing to provide disabled Plaintiffs with a commensurate additional benefit associated

with military time, ARSC and PVSC benefits and/or using the funds to offset an existing

vested benefit (including IDR).

349. In violation of the Labor Code, CalPERS is charging Plaintiffs a share of the

benefit that it considers to be in nature of workers' compensation.

CalPERS argues generall y that it has not breached any statutory duty to Plaintiffs because it

conduct is authorized by the PER I: on all fronts. It first argues. as e plained above, that Plaintiffs canno t

use their purchased service credits to obtain an annuity under ;21420 because their credits are not lot

service with another CalPERS employer.

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ORDER SUSTAININGAINING DEFENDANT'S DENIERRER TO THE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

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CalPERS also notes that 821153. which requires an employee to waive IDR. benefits in order 10

2 receive a refund of a service credit plirCiljtit2, 111CLIIIS that an emplo yee may not collect both. This i

3 supported by §21039(a), whlch permits the employee to Cancel future installment payments for servic

4 credits if he/she receives IDR -- the statute expressly notes that the employee may not receive a reflux

5 of money alread y paid For service credits. Plaintiffs eGIUCIlli that the inability to provide a refund mean

6 that CalPERS "cannot provide value for the monies retained; but they Co trot snags', how CalPERS

7 could accomplish this vaunt violating ;21153. (Opp. p. 20.) There is thus no basis under the PERI_ lot

8 Plaintifis to collect both IDR and the annuity From their purchased service credits.

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The FAC also alle ges that CalPER8' practices violate the federal tax code. ERISA and slate

workers' compensation laws. (FAC •113(n). 221-232, 279-284, 345-46.)

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The FAC alleges at para graph 8(c) that Call'ERS policy violates Internal Revenue Code ;415

which ''relieves] members participating in defined benellt government pension plans From the otherwise

applicable cap on how much they may contribute to buy permissive service credit. - (ME pi 10.) Because

of the Court's whites, infra, the Cowl need not reach this issue.

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2. ERISA

Paraaraph 3(n) of the VAC :Meet's that:

Many Plaintiffs invested i sit:mit -Dam portion o l i their He sa y ings, incluctira b y urollitta

over' Funds From the:r 457 accounts CalPF RS mast separatel y account For

any 457 rollover it receives and [mist hold ia mist For the exclusive henelit of participants

and their beneEciaries all assets and rlelits purchased therewith. (26 C.F.R., §§il .457-

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ORDER SUS I AINING DEFEND N I'S DEMURRER TO'l IIE FIRST AMENDEDCOMPLAIN I WITHOLI LEAVE TO AMEND

345. in violation or the laws Ind r .:‘. yailations or the Internal Revv21111e Code, CalPERS is

failima, to calculate, cost, treat acconnt. scatreuafe„ind provide the Plaintiffs with :the

military hme, ARSC and PVSC benclits in ccoraancc with the rules governinu

"permissive service cretins".

346. In violation cube laws and rciralUams cube internal keVeillIC Code. Ca:PERS is

overcharging (by. inter alia. ad me unrdated costs in the investment and by charging a

tee OF installment paymcnts) Plaintilk for the 1M ihary time. ARSC and PVSC, benefits in

violation orthe rules uovernine ' l oci-missive service erHits".

347. In violation of the laws mid icJ,2ulation:- of the Internal Revenue Code, CalPERS is

failing to treat Plaintiffs' Ionic SIAM pavrneiiis or loll-o.urs 1 -rom tax preferred investments

used to invest in Dania' v fame, ARSC anti IA SCI himelits in accord with the pales

governing tax-pre:el-rod investments.

342. In violation or the laws and Fe L2alations of the Imernal Revenue Code, CalPF.RS is

failing to provide disable0 Painti Lis with a commonstame additional benelit associated

with military time, A RSC and PVSC bcc,c:ts and/or usina the (hinds to offset an existing

vested benefit (Melt/Wan IDR

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349. In violation of the Labor Code, Cii!PERS is chancing Plaintiffs a share of the

benefit that it considers to he in riantre of Yorkers' compensation.

CalPERS argues (2.enerafl y that it oi hicaehed an y statutor y di.n.y to Plaintiffs because its

conduct is authorized b y the PhIC I, on all Poets ft First iiruties, as explained above, that Plaintiffs cannot

use their purchased service credits to obtain an annuity nuclei l'i 3 1420 because their credits are not (hi

service with another Call' ERS emplover.

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ORDER SUSTAINING DIJLNDAN I'S DEMURRER TO TILE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

10(e) and (g).) If a Plaintiff used 401(k) funds to purchase the permissive service credit,

the accrued benefit must be non-forfeitable. (29 U.S.C. *1053.)

29 USC §1053 is part of ERISA, which does Pot apply to CalPERS. (29 USC §1002(32

(defining "governmental plan" to include state government plans), §1003(b)(1 ) (stating that ER1SA doe

not apply to governmental plans as defined under §1002(32).) ERISA is thus not a sufficient basis lo

these claims.

3. 26 LISC §104(a)0 orkers l Compensation/Labor Code

The RAC alleges at paragraph 3 that:

d) CalPERS, in reliance on determinations made by the Internal Revenue Service,

has deemed 1DR benefits as being "in the MILIVe of a workers' compensation award" and

thus tax-free. (IRC 104(0(1.) ''[Al law . ma y imalify as a 'workmen's compensation act'

..., even though those benefits are styled as 'disability retirement benefits "(Take v. C./.R.

Service (9th Cir. 1936) 804 F.2d 553, 556-57.)

e) State statutory law forbids an emplo yer from directly or indirectly charging an

employee for any share of workers' compensation. (Labor Code, 0751.) Case law

forbids retirement systems from usin g employee contributions to offset the cost of

providing disability retirement. (Healy v. Industrial Acc. Corn. (1953) 41 Ca1.2d•118.)

Vet CalPERS charges Plaintiffs for a share or the 1DR benefit that it has characterized as

workers' compensation.

26 USC §104(a)(I) permits trcatmen: of DR payments as workers' compensation dkahility

payments only to ensure that they do rot receive less favorable tax treatment than other disabilit

payments — i.e. they are excluded from gross income. Plaintiffs argue that since CalPERS "adopt[s]

ORDER SUSTAINING DEFENDAN F'S DEMURRER TO THE FIRST AMENDEDCOMPLAINT WI flIOUT LEAVE TO AMEND

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1 treatment of 1DR funds as in the nature of workers compensation" it also must accept the application o

2 §3751. The Ninth Circuit ease cited in the PAC. Take v. CIR. Servece (9th Cir. 1986) 804 F.2d 553

556-57, confirms that 104 may be applied to disability payments "in the nature Or workers

4 Compensation but does not suggest that that characterization transforms them into actual workers'

5 compensation.

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7 The Internal Revenue Cede provides for the exclusion from income of certain payments

received as "compensation for injuries or sickness." LR.C. § 104. Payments will qualify

for the exclusion under section 104 if deemed -amounts received under workmen's

compensation acts as compensation i'or personal injuries or sickness. - I.R.C. 104(a)(1).

The Commissioner's regulations interpret this section also to exclude amounts paid

"under a statute in the nature of a workmen's compensation act which provides

compensation to employees for personal injuries or sickness incurred in the course of

employment. - Treas.Rea. § 1.104- 1( b ) (1060).

Moreover, Labor Code §3751 (which prohibits use of employee contributions to offset worker

compensation expenses) does not trump Govt. Code §2I418, which expressly permits application o

member contributions to pay for IDR. 3 Since ;121053 expressly permits categorization of permissiv

service credits as normal contributions, the credits may be used to pay for IDR.

The FAC claims that lajccounting for IDR, the 'normal contributions' referred to in [§] 2141S

includes onl y the contributions associated ‘vith actual work in the safety position where the Member

3 "The disability retirement allowance for a patrol, state safety, state peace officer/firefighter, stat

industrial, or local safety member retired because of irduKrial disability shall he derived from his or he

accumulated normal contributions and the contrihutiens of his or her employer." (Cal. Govt. Cod

§21418.)

ORDER SUSTAINING DEFENDANT'S DEMURRER 10 THE FIRST AMENDEDCOMPLAIN I WITHOUT LEAVE TO AMEND

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Those normal contributions exclude contributions the Membei

paid to CalPERS in any manner for service or time outside the job where he or she was injured.

(Government Code. §21420.)" (''d 255.) Plaintilis thus contend that the 'normal contributions' which

form the basis of !DR under §21418 do not include the permissive service credit, which they again argue

should result in an annuity under §2! 420 But as noted above, §21420 does not permit for the recovery

of both IDR and the permissive service credit. The same holds for §21153 and §21039, the refun d

provisions concernin g permissive service credits. Moreover, §21420 only permits an annuity based or

service in "another category of membership- - i.e. with another CalPERS employer. Credits for servic

with another employer cannot be used to obtain the annuity.

The case cited in the FAC, Healy ha/as/nal Ice. Cool. (1953) 41 Ca1.2d 118, states that at

emplo yer may not offset a workers' compensation award \\ ill ) disability pension benefits funded in par

by employee contributions. (M. at 121-22.) It does not support Plaintiffs' argument that employe

contributions cannot be used to offset the cost or (Usability payments, which is expressly permitted by

Govt. Code §21418. Moreover, 1DR does not hecome a workers' compensation award simply because it

is "in the nature of- such an award for tax purposes.

Stafford v Los Angeles County E. P. Roast! H954) 42 Ca1.2d 795 held that Govt. Code sections

32080-81, which permit the withholding or pension payments) until the amount withheld equals th

amount of a workers' compensation award, prevail over §3751, since they were enacted later an

contain more precise language. (Id. at 798.) The court observed that the relevant Labor and Governmen

Code sections "arc basically of qua; sanction as enactments of the Legislature.- (k/.)As Defendan

contends, §21418 trumps 33751, which was enacted canter and contains broader language. For thes-

reasons, the demurrer to the first cause or action Is yell-taken.

C. Second Cause of Action - Breach of Contract

The second cause of action ,illeges that:

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ORDER SUSTAININGAINING DEFENDANT'S DEMURRER TO THE FIRST AMENDEDCOMPLAINT Wituout LEAVE TO AMEND

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370. CalPERS overcharges Plaintiffs and breaches the purchase contracts by including

in the investment a surcharge or costs unrelated to fundin g the increased service benefit

purchased, including costs that ‘votild violate the PEAL and the Internal Revenue Code.

371. Cal PERS overcharges Plat l a ! Is and breaches the purchase contracts by including

in the installment payments and investment a lee or eliarge of one-half of one percent that

is unrelated to funding the increased service benefit purchased, including costs that would

violate the PERL and the Internal Revenue Code,

372. CalPERS breaches the !DR contracts by Iaitnm to provide the statutory [DR.

benefit in full.

373. CalPERS overcharges Plaintiffs and breaches the DR contracts by offsetting the

disability benefits with monies received related to the purchase of service credits,

including offsetting that would violate the PERL and the !menial Revenue Code.

174. CalPERS breaches the purchase contracts when it fails to provide full additional

commensurate value for the monies that Plaintiffs contribute for additional benefits

Govt. Code ;21052 4 requires the employee to pay "an amount equal to the increase in employci

liability" when he/she purchases service credits and §21050(13C, which authorizes an actuaria

adjustment when the employee pa y s or the credit's in installments.

4 ("A member who elects to receive service credit subject to this section shall contribute,

accordance with Section 2[050, an amount equal to the increase in employer liability, using the payrar

and other factors affectin g liability on the date of the request for costing of the service credit." (Ca

Govt. Code §21052.)

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ORDER SUSTAINING DEFENDANT'S DENIURRER TO THE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

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Plaintiffs claim that CalPERS included improper charges for "1DR expenses, unfunded employe

liability, disability experience [and] actuarial factors unrelated to the increase in the Member's futur

service pension allowance. - (Opp. pp. 9-10.) This overcharging argument appears to be based o

Defendant's categorization of purchased credits as contributions in the current position, and th

subsequent use of those contributions to fond 10R - a nove permitted by Govt. Code §21418 (use o

contributions to fund IDR) and j21053 (permissive service credits characterized as norma

contributions). Nothing in j21420 bars tins. Section 21420 does not permit recovery of both IDR an

permissive service credits, and this language is affirmed by §21153 (refund only if 1DR waived) anc

§21039 (cancellation of future installments; no refund). The demurrer is \vell-takcn.

D. Third & Fourth Causes of Action — Rescission/Restitution & Fiduciary Breach

These causes of action allege:

457. Using unconscionable contracts of adhesion that do not disclose the risk of loss if

the Plaintiff is disabled, coupled with CalPhRS' superior bargaining position (including

as the mandatory pension plan and onl y source of disability payments for state workers

and other public employees workine for CalPERS employers), CalPERS advertises,

induces Plaintiffs to contract, and contracts with Plaintiffs to purchase military time,

ARSC and PVSC on the explicit and implicit promise that their retirement benefit will

increase.

s „( If a member electing to receive Gain or seri ice [ is authorized to pay for that service it

installment payments [. the amount of the installment payments shall include an actuarial adjustment,

]as necessary to take into account the provisions of Section 2t037. The amount of the actuaria l

adjustment may not exceed one-half of '1 percent of the total installment payment." (Cal. Govt. Cod:

j21050(b).)

ORDER SUSTAINING DEFENDANT'S DEMURRER TO THE FIRST AMENDEDCOMPLAINT Wil DOUT LEAVE TO AMEND

482. CalPERS breaches it [sic] fiduciary duties including by (i) failing to disclose that

it will not pay an additional military time. ARSC or PVSC benefit in certain cases, (ii)

treating certain Members differentl y than other similarly situated Plaintiffs; (iii) failing to

interpret the disability, military time ARSC, and PVSC statutes in way favorable to the

beneficiaries; (iv) failing to properly account for the military time, ARSC and PVSC

contributions; (v) failing to properly account ihr disability contributions; (vi) dividing its

loyalty such that sonic of the Plaintiffs military time. ARSC or PA I SC contributions do

not benefit Plaintiffs; (AU) overcharging Plaintiffs; and (viii) in other WayS to be proven at

The service credit packets clearly disclosed that "this additional service credit may not benefit'

employees who "are considering DISABILITY RETIREMENT' . rather than service retirement. (FAC

1i39, Exh. I and 1156 Exh. 7 (emphasis in ori g inal).) The RAC admits that the CalPERS "Calculate My

Service Credit Cost' calculator on its i.vcbsite says [ I[von plan on retiring on a disability or industrial

disability retirement you should contact CalPERS to determine if purchasing Service Credit will

increase your retirement benefit." (1,1386.) Plaintiffs admit that CalPERS warned that "some members

may derive little or no increased benefit from additional service credit" and "additional service credi

may not benefit you." (Opp. p. 23; ENE', 1 to EAC and Exh. 2 to (i'omplaint.) Although Plaintiffs come]

that the loss of their permissive service credits -violates their reasonable expectations at the time

contracting" (Opp. p. 21), this is not possible because the contract discloses that the credits may be los

upon disability retirement Marc specifically. there can be no breach where the contract explains thi

possibility.

Plaintiffs also contend that the contracts cohlaiii promise by CalPERS that Plaintiffs would pay

only marginal employer costs incurred in purchasi ri g the service credits and that "no amount" would be

"transferred" to CalPERS. (Opp, p. 22,) Classification of the purchase credits as normal contributions

ORDER SUSTAINING DEFENDANT'S DEMURRER TO THE FIRST AMENDEDCOMPLAIN \VI - 1110U I LEAVE TO AMEND

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which arc used to Hid IDR, does not constitute a t ran sfer of t ilintis to (MINERS. The other overchargim_

claims similarly have no merit.

Since CalPERS conduct. thus far. Ms Ertich jusaified ho statutor y enactment, it is difficult to see

how it could hive bleached a niluciary lute 10 Pt: j ilt:ITS. Plaintiffs cute that CalPERS' fiduciary 'pie

meant that it had a LtyealCr oniittloi' to JSCIOS.0 VtlribbS COLITO1',C111S en se r vice credit purchase and

'DR, hut the contract specifically instrimteti PlaimiliS to contact Defendant to obtain more information

about the interaction of the two,

Plaintiffs argue that the wim to dud c lin' be lost does not sufficientl y alert

anyone that contrihotions may be lost H uSif101Hhidiii fares no better. Contributions were LISC n

specifically to purchase service credits. The_si cannot lt separated Crum each other.

Plaintiffs also argue that the ci ovinet icf pm disclose that their IDR benefits would be

-decreased" by the purchase of permissive service credits p. 24). The lhet that the service credits

were classified as normal contributions and tised to Curti IDR did not 'itch the amount DC IDR Plaintiff:

received. No decrease has taken place -- Pia milk are receiving their 50% IDR entitlement, tax Free.

Again, the demurrer is well-taken

E. EIETIL SIXTH & TEN I II (USES OE ACTION - DENIAL OF EQUAll

przoTEcyloN. DUE PROCESS V101 Al ION & CONSTITUI TONAL IMPAIRMEN.I

OF CONTRACT

These causes of Pepe:

459. Linder CIMPER5' current polic y twin cracrice, CalPERS chin ges Plaintiffs that

purchased militar y time. ARSC or 1J\ SC additional fees or costs associated with

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ORDER SUSTAININGAINING DEFENDANT'S DEMURRER "O) TIIE FIRST AMENDED

employer costs. including but not limited to IDR. inn -untied liability, or insurance "in the

nature of workers' compensation", that it does not charge to those who do not buy the

optional service credits. Call:TrKS is not allowed to charge employees for a share of their

workers compensation insurance on CAPERS' belt:ill - or on behalf of the employers.

490. Under CalPERS' CUITCIII polic y and practice, some disabled CalPERS Members

that purchased military time ARSC or PVSC are receiving or %Nall receive a pension

allowance that pays them the full value of thc military time. ARSC or PVSC benefits they

have purchased. Plaintiffs, however, arc receiving or will receive none, or at most only a

reduced portion, of the value of their military time„ARSC or PVSC benefits.

493. In addition, CalPERS also violates equal protection and unfairly discriminates

when it pays military time. ARSE' or PVSC benefits to some disabled Members and

deities military time, ARSC or PVSC benefits to other disabled Plaintiffs. Many

CalPERS Members work in a two or more di ti e rent jobs

497. Because military time, ARSC and PVSC is so expensive, many Plaintiffs contract

to buy it from CalPERS in installments to be paid from future payroll contributions.

Some Plaintiffs became disabled before paying off their installments

502. Finally. CalPERS' denial of equal protection and discriminatory treatment of

Plaintiffs is further illustrated by looking at how Cal PERS treats Member funds

contributed to the CAPERS 457 defined contribution plan. Since CialPERS also maintains

the 457 program, the method or necountinit for contributions to the 457 plan and

contributions for military time ARSC and PVSC indicate the primary distinguishina

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ORDER SUSTAINING DFIFNDANT'S DEMURRER TO THE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

513. CalPERS may not deny Plaintiffs' the benefit of military time, ARSC or PVSC

and may not seize the investment in military time, ,ARSU or PVSC without due process

of law. (Amendment V, United Stales Constitution and Article California

Constitution.) Alternatively, CalPERS may not deny or reduce the amount or value of

Plaintiffs' disability allowance without due process of law.

538. Government Code sections 70999, 210OG-21003, 21013, 21020.5, 21023.5,

21024, 21025.5, 21027 and 21029-21031 impaired Marzec's, Healy's, and Esparza's and

other Plaintiffs' right to their 5(rtiii 1DR allowance by causing the money to be described

as "normal contributions" and then used those funds to offset Plaintiffs disability

allowance. Marzeeds, Healy's, and Esparza's IDR entitlement vested at the time of their

first employment in the "safety" category. CaiPERS' practices impaired Marzec's,

Healy's, and Esparza l s and the other Plaintiffs' Hain to both their IDR allowances and

their additional optional benefits. (California Constitution, Article 1, Section 9.) The

contract clauses oldie federal and state Constitutions limit the power of a state to modify

its own contracts with other parties, as well as contracts between other parties. (Allen v.

Board of .4dwinistration (1983) 34 Ca1.3d 114, 119. Valdes v. Cory (1983) 139

Cal.App.3d 773, 733; Board of .4chninctra,. c Wilson (1997) 52 Cal.App.4th 1109.)

CalPERS' categorization is the correct one. Plaintiffs cannot he similarly situated to employee

on I.DR who did not purchase service credits because those employees did not purchase service credits

Plaintiffs can only compare themselves to other employees who did purchase service credits. Th

"similarly-situated- employee, then, is the one who purchased credits and received an annuity a

retirement. As to the differing treatment of these emplo yees, CAPERS has asserted an adequate rational

basis: actuarial soundness. What Plaintiffs propose \weld undermine the entire system.

No due process violation has occurred because Plaintiffs have not shown entitlement to benefits

(Duff v City of Gardena (1980) 108 Cal App.3(1930, 937 ("since Duff had not acquired a vested interest


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1 in disability retirement benefits, pursuant to PERS, he was not deprived of due process (see, e.g.. Patrol

v. Governing Hoard (197S) 77 Cal.A0p.3d 495, 499.. -).)

No constitutional impairment or contract has occurred because Plaintiffs have no vested pensiot

rights and have not otherwise shown denial or any benefit that existed at law. (Vielehr v State (1980

104 CalApp.3d 392. 395-97 ("public cmployment aml the rights, duties, and conditions thereof ar

creatures of statute, not contract, and unless and until vested rights to retirement ripen into veste

contractual rights," there is no impairment or contract.) Plaintiffs are receiving the benefit of the onl

vested right they acquired: the 50%11DR payment. 1 - hey have no vested right to any other benefit.

F. SEVENTH, EIGHTH, NINTH, ELEVENTH & TWELFTH CAUSES OF ACTION -

EQUITABLE RELIEF, DECLARATORY RELIEF, ACCOUNTING, ESTOPPEL. &

OTHER RELIEF

These causes of action are deri tiye ofthe others and need no independent consideration.

G. CLASS DEFINITION (STATUTE OF LIMITATIONS)

CalPERS next contends, based largely on arLiument already considered by this Court anothe

case (Yost v. CalPERS. 3C444842). that the class definition is overbroad and includes class member

whose claims accrued outside of the one-year limit set by the Government Claims Act (“GCA"). Marzc

presented his claim to the Victim Compensation and Government Claims Board on March 24, 2011 (

171) and CalPERS thus contends that all claims NA, hich accrued before March 24, 2010 are barred. Thi

would include named Plaintiff Esparta, ho received his first DR check on August 18, 2009 I 84).

CalPERS also contends that all claims by the alleeed "overpayment - class accrued outside of th

limitations period. Marzec and Healy purchased their credits six years before their claim fomas were

ORDER SUSTAINING DEFENDANT'SS DEMURRER TO THE FIRST AMENDEDCOMPLAINT nVITHOL; F LEAVE TO AMEND

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submitted (i1 43, 60, 171, 75). Esparza never filed n olani form and purchased his service credit

2005. fl 79 & Exit 14.)

The FAC alleges that the application of the discover y rule prevents accrual until October 15

2010:

178. At the earliest, the claims of Marziee, Heal y , fisharza and all other members of the

proposed class accrued within less Iliac the a year of the filin g of the instant action

because none of them discovered or could have discovered CalPERS improper

characterization of their investments in military finie„ARSC and/or PVSC until CalPERS

disclosed this fact in the course of the lo.)1 v. Ca/REPS lawsuit. In the alternative, the

claims of Marzec, Healy, Esharza and nil other members of the proposed class accrued

since the initiation of the instant action because none of them discovered or could have

discovered ClaIPERS' improperly char g ing them expenses unrelated to funding future

service retirement(s) until CalPERS produced documents in the course of the litigation

herein.

(See also 111142-155.)

Plaintiffs' argument lacks merit. Many allegations in the current complaint are identical to Yost

Plaintiffs were aware of CalPERS' calculation methods before the Yost complaint was filed and th

demurrer heard. Moreover, according to the RAC. Plaintiffs should have been aware of their injury as o

the date they received their first HDR checks — for Esnarza, this was in 2009. Even the overpayment

claim appeared in the original Alaray complaint, \\hie )) was tiled in May 2011 — long before discovery

took place.

The FAC further alle ges that the statute did not hewn to run because CalPERS had a fiduciary

relationship with Plaintiffs, based on In Iv Chn:.-1‘ . Estate ( I 928) 203 Cal. 335, 341-42. However

Claty's Estate also notes that "[i]n order to set the stat ate in motion it is necessary that such a trustee, by

- I -ORDER. SUSTAINING DEFENDANT'S DEMURRER 10 THE FIRST AMENDED

COMPLAINT WVIHOUT LEAVE TO AMEND

some act or declaration, positively and unefiiii vocally repudiate the trust, and that notice of such

repudiation be brought home to the beneficiary. - (Id. (quoting MacMullan V. Kelly, 19 Cal. App. 700).

Plaintiffs would have received notice of the alkeeed trustee's alleged failure to perform its fiduciar y

obligations when they received their First IDR checks.

The FAC also alleges continuing violations and breaches by CAPERS such that Plaintiffs have a

new right of action with every monthly benefit check. tt il 163-1(9.) This Court rejected the assertion of

the continuing violations doctrine in the Yost case. (Dem. Exh. A. pp. 7-8, relying on Dillon v. Board of

Pension Conirs o,f city of Los Inge/es ( 1941 f IS Cad.2d 427, 429-30 (distinguishing between an action

to determine the right to receive a pension and an ,1C; iOn to recover periodic installment payments))

Separately, the EAC alleges that the overpa yment claims did not accrue until January 2012:

147. At the time of their respective archaises of military time and ARSC and

continuing to the point of Calf-1 E12S' production in the litigation herein after January

2012, named Plaintiffs Martec, Healy and Esparta and others were unaware of the

nature, extent, amount, or facts of their injury caused by CalPERS' improper inclusion of

expenses for IDR allowances, unfinitied liability, disability experience or other costs

unrelated to funding the cost of the porn on of the Member's future service retirement

attributable to that service credit. It is difficult for Plaintiffs to immediately detect or

comprehend the overchargin g , violations, breach or resulting injuries. CalPERS provided

Plaintiffs no information, explanation, or disclosure of its wrongful pricing or

overcharging for the cost of tiliaary nine, A RSC and PVSC, even though CalPERS has a

fiduciary duty to do so.

The documents Plaintiffs recen ed at the time of their purchases explain that the present valu

calculation of the projected increased service retirement benefit 'involves a number of actuaria

ORDER SUSTAINING DEFENDANT' S DEMURRER TO THE FIRST AMENDEDCOMPLAINT WITHOUT LEAVE TO AMEND

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assumptions.... - ([AC BIT 7.1 Althoneh one ma y ask how this disclosure ailecedl y put Plaintiffs on

notice that their payment may include mproner items, those eharces are authorized by thc PERI-

The FAG also claims that Plaintiffs did nol earn Thom a nab-percent sercice charge it:1W the \

received that information in discovery in Yost 146) fins service charge is authorized by Govt. Code

§2 1050.

III. ouelusion:

Plaintiffs' situation is et:a-nu:tie symnathenc, They paid thousands of dollars (some front

retirement savings) for a beneM that never minefialized. However, the upside of their :iambic was

considerable: if Ilicv reached retirement age. Plaintiffs \vioutd have leceived it guaranteed 7.75% return

on their money - more than could Ce enaniniced b y manv - perhaps most these da ys - other investmen

vehicles. Moreover. some Plaintiff's are receiviim more in Init than they earned in retirement benefits

because they were disabled before vet:ix:mom mdx: and are receb tic SOY of their salar y , tax free.

The Logislatare has male n plant that the only way to sustain the actuarial risk of the retiremen t

system is to retail this money whea Haim: ifs rcere on IDIC As the C'eurt noted at the hearing, "than

the whole idea of actuarial science and risk spieati. Ion may pa y a fortune over your life for cal

insurance and :lever nave an accident. I j Now, is that lair lu the glIV HIO Hid Morle y nil his life?

Absolutely not except ?or one tome. We're not worried idiom Fitaneinl Ilinness. We're worried about

peace of mind. And U is lbir Mal they had their Hace of mind from day one, - i .he policyholder is not

entitled to a refund because she never had an eceidem and ner nei ghbor, who made one payment, had an

accident and received a LIP:2, t2 SLIM Or111Lro2V.

Accoidinuly. the denioi'rcr is sust .2,1 \vlthiu tit lO,1‘..O to ttiiienrl.

IT IS SO ORDERED.

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ORDER SUS LUNING DI-11 . 1.NDAN I'S DEMURRER 10 HIE FIRST AMENDEDCONIPI \ IN I N\ 110ti LEAVE I 0 AMEND

0])y J. 1o1;r

.Iudgc 1.:1c Los A:huJles Superior Court

DATED: November 6. 201

ORDER SUST INING DEFEND:3/4.NT 'S DEMURRER TO THE FIRST AMENDEDCOMM, \IN ITHOUT \ E To AMEND

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SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE' 11/05/12

DEPT. 309

HONORABLE ANTHONY J. HOER JUDGE M. CERVANTES DEPUTY CLERK

HONORABLE JUDGE PRO TEM

M. RODRIGUEZ, Courtroom AssistantELECTRONIC RECORDING MONITOR

8NONE

Ikon) She:

3C4 61887

ROBERT MARZEC ET AL

VSCALIFORNIA PUBLIC EMPLOYEESRETIREMENT SYSTEM ET ALr/t BC444842 (Lead)

NONE Reporter

'Li. nil

Coun<I

L)c icLI;J nt

C.uz,e1

NO APPEARANCES

NATURE OF PROCEEDINGS:

COURT ORDER

The Court's ORDER SUSTAINING DEFENDANT'S DEMURRERTO THE FIRST AMENDED COMPLAINT WITHOUT LEAVE TOAMEND is sicned and filed this date.

A copy of the above titled order is sent to counsellisted below.

CLERK'S CERTIFICATE OF MAILING

I, the below-named Executive Officer/Clerk of theabove-entitled court, do hereby certify that I amnot a party to the cause herein, and that on thisdate I served the Minute Order dated November 5, 2012,upon each party or counsel named below by placingthe document for collection and mailing so as tocause it to be de posited in the United States mailat the courthouse in Los Angeles,California, one copy of the original filed/enteredherein in a separate sealed envelope co each addressas shown below with the postage thereon fully prepaid,in accordance with standard court practices.

Dated: November 6, 2012

John A. Clarke, Executive Officer2ilerk

MINUTES ENTERED11/05/12COUNTY CLERK

Pace 1 of DEPT. 309

SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES

DATE: 11/05/12 DEPT. 309

HONORABLE ANTHONY J. MOHR JUDGE M. CERVANTES DEPUTY CLERK

HONORABLE JUDGE PRO 'iTmM. RODRIGUEZ, Courtroom Assistant

ELECTRONIC RECORDING MONITOR8

NONE pe(ollysiletio NONE Reporter

BC461887 PJJ1Jrn IIPCounse l

ROBERT MARZEC ET ALDOcELIJot

VS c000it

CALIFORNIA PUBLIC EMPLOYEESRETIREMENT SYSTEM ET Ai

r/t 8O444842 (Lead)NO APPEARANCES

NATURE OF PROCEEDINGS:

By: M. Cervantes, Deputy Clerk

John Michael Jensen, Esc.LAW OFFICES OF JOHN MICHAEL JENSEN11500 West Olympic Blvd., Suite 550Los Angeles, CA 90064

Edward Gregory, Esq.Jason Levin, Esq.STEPTOE & JOHNSON LLP633 West Fifth Street, Suite 700Los Angeles, CA 90071

MINUTES ENTERED11/05/12COUNTY CLERK

Page DEPT. 309

john michael jensen, state bar no. 176813 law offices of ...johnmjensen.com/pdf/marzec -...

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