Many fire fighters, police officers, and other safety officers invested in Military Service Credit, Additional Retirement Service Credit (“Airtime”), or other present value service credits with CalPERS.
Plaintiffs Robert Marzec, Rachel Healy, Benjamin Esparza, Jeffrey Andert, Randy Slaughter, Neil MacLaren and Henry Brown seek to certify a class of CalPERS safety officers who are entitled to rescind “agreements” that purported to invest their private funds with CalPERS for future increases. CalPERS’ standardized promotional material and form contracts for the optional “military time” or “Additional Retirement Service Credit” (“military/airtime”) investments omitted, misrepresented, and hid special significant risks of loss, no refund, adversity, transfer, and offset that CalPERS knew was material to safety members under age 50.
Each class member is required to enroll in CalPERS. CalPERS is the sole source of official information on CalPERS benefits and the sole pension administrator. CalPERS employees did not talk or advise about the investments, but instead told Plaintiffs to read and rely on CalPERS’ standardized forms, which were the sole avenue of information. CalPERS sent nonnegotiable standardized written forms and contracts to everyone in the class. Consent on material terms is required to form a contract. CalPERS’ standardized forms and contracts omitted, misrepresented, and failed to disclose material terms including a risk of loss, no refunds, no increase, IDR offset, transfer to CalPERS or the employer, and CalPERS’ adversity. CalPERS used “present value” and other terms in an ambiguous, misleading, and non-standard manner. CalPERS knew the forms were incomplete, ambiguous, or omitted terms. CalPERS required that Plaintiffs sign the form contracts. Plaintiffs were factually and legally mistaken. Plaintiffs did not consent. Consideration failed. Each Plaintiff invested tens of thousands of personal funds, yet received little or nothing in return. CalPERS retained an undisclosed adverse financial position to Plaintiffs. CalPERS took advantage. The forms breach CalPERS’ fiduciary and trust duties and allow class members to rescind. (Hittle v. Santa Barbara Cnty. Empl. Retire. Assn. (1985) 39 C3d 374.) Partial rescission is also available for each separate increment of investment.
CalPERS’ conduct shows that it was aware of Plaintiffs’ legal mistake and lack of consent before contracting. Not only did CalPERS not fix the mistake by providing better information before contracting, instead CalPERS took advantage. For the first time, after some Plaintiffs retired on IDR, CalPERS forced a two-page waiver that newly purported to deny “refunds,” trying to add new terms after their injury. (See Andert Decl., Exh. 21, 23; Brown, Exh. 14, 15.) The existence of CalPERS two-page form waiver and CalPERS’ first use of it after injury shows CalPERS knew that none of the Plaintiffs consented to “no refunds” in the original contracts.
Plaintiffs are firefighters, police officers, and other safety members who perform dangerous jobs at the state and local level. (Marzec, 11-13; R.Healy, 10-22; Esparza, 13-14; Andert, 15-17; MacLaren, 8-15; Slaughter, 17-18; Brown, 13-16.) CalPERS owes and breached a number of fiduciary duties to Plaintiffs. CalPERS knew since at least 1991 of the specific risks (see discussion infra), but CalPERS’ standard practice, policy, and documentation omits, misrepresents, and hides material terms that would disclose the risks before contracting.
CalPERS’ policy and practice caused mistake, lack of consent, loss, and damage across the class. Plaintiffs seek a “class period” from 1991 onward. Through partial discovery, Plaintiffs ascertained the identity of at least 177 safety officers who similarly suffered total losses of approximately $11,250,000 from 2003 to 2014, without including interest. (Jensen, 35-36.) CalPERS provided them no advantage, no increase, and no benefit from the optional investment. CalPERS also used the same practice and policy to cause at least another 70 officers to suffer partial losses of $6,900,000 from 2003 to 2014, without including interest. (Jensen, 37-38.) Partial rescission is available for these incremental contracts. (Infra.) Plaintiffs seek interest too.
To put each class member back in the position that they would have been but for CalPERS’ wrongs, each class member is entitled to rescission of the investment contract, restitution, interest from date of deposit, damages, attorney fees, and costs. Each named Plaintiff returned everything of value he/she received under the contract, which is nothing. (Marzec, 246; R.Healy, 248; Esparza, 239; Andert, 332; MacLaren, 237; Slaughter, 234; Brown, 252.)
The legislative history and the IRS code required that the investments to be calculated at “present value” so that CalPERS only accepted enough of the Plaintiffs private monies to fund the future income stream. The investments were required to be “cost neutral” so that there was no transfer of the Plaintiffs’ private money to CalPERS, the retirement system or the employers.
Sometime after investing in Military Service Credit, Airtime, or other present value service credit investments, each Plaintiff was injured on the safety job and determined to be industrially disabled. (These disabilities are not in question.) As a result of being injured and entitled to IDR, each Plaintiff was entitled to an allowance that included an IDR of 50% of their highest pay, composed solely of a tax-free tort recovery under the Internal Revenue Code.
After Plaintiffs suffered disability and retired on IDR, CalPERS did not pay Plaintiffs a proportionate “increase” or additional funds, benefit, or value related to all or part of their investment in Military/ARSC/PVC.
Many Plaintiffs lost all of their money. The Plaintiffs’ private monies were transferred to the employer or CalPERS.
For example, CalPERS caused some Plaintiffs to receive no value or no increase for their investment. For these Plaintiffs, CalPERS caused each to lose $20,000 to $200,000 or more of his or her private money as a result of being injured and retiring with IDR.
CalPERS caused other Plaintiffs who retired with IDR to receive only partial value or a partial increase for their investment. For those Plaintiffs who worked enough years prior to retirement to receive a partial or prorated “service” allowance in addition to the 50% IDR, CalPERS provides increases for parts of the investment, but no value for other parts of the incremental Military/ARSC/PVC investment.