Case Background

Case Background

Background to investment. Since the 1970s, CalPERS allowed members with prior military service to invest their private money to bring one to four years of military service into CalPERS to increase their pension. Until 1984, CalPERS expressly allowed refunds of these investments if the safety member retired with IDR. (Jensen, 18-22.) After 1984, CalPERS no longer allowed refunds. After 1984, CalPERS was required to inform potential investors before contracting of the risk of loss or “no refunds” and get consent to those terms. But CalPERS did not inform or warn safety members of these risks, even though it knew a lot of safety members invested. (Ibid.)

In 1991, legislation was introduced to again permit refund if investments did not provide increases after IDR. While the reason the 1991 legislation did not pass is unclear, it put CalPERS on notice again that members contracted mistakenly and suffered losses if they retired with IDR before age 50 or with insufficient years of service. (Jensen,23-27.) Before 2003, CalPERS’ forms still had no warnings of risks at all. (Slaughter, Exh. 5; Marzec, Exh. 3.)

Starting in the 1990’s, the principal to be invested was calculated as the “present value” of the future increases. CalPERS calculated the present value. (Gov’t Code, §§21024, et seq.)

In 2003, CalPERS allowed all members, including safety members, to also invest the “present value” of the future increases in an investment called Additional Retirement Service Credit (“airtime”). (Gov’t Code, §20909.) About 10,000 CalPERS safety members invested in airtime between 2004 and 2011. (Jensen, 42-43, RJN, Exh. 4.)

IDR rights. Before contracting for the optional “present value” investment, Plaintiffs had pre-existing rights to industrial disability coverage. (Gov’t Code, §§21151.) IDR provides an injured safety member with monthly payments for life in the amount of 50% of last salary, as a tax-free tort recovery for the physical injury. (Gov’t Code,§§21411, et seq.) IDR is funded by the employer and from contributions made in that safety job and administered solely by CalPERS. (Gov’t Code, §21418; Jensen, 50-54.) CalPERS did not inform Plaintiffs that it could use the investment principal to pay or offset the employer’s responsibility to pay the IDR.

Plaintiffs’ accounts at CalPERS; CalPERS as source of official information. Each class member had money in specific accounts with CalPERS (Marzec, 23-24; R. Healy, 32; Esparza, 20; Andert, 33; MacLaren, 124; Slaughter, 37; Brown, 19.) CalPERS is the sole official source of information about all CalPERS pension benefits, including the military/airtime investments, IDR, and service retirements. (Marzec, 156-160, 167-169; R.Healy, 137-139, 171-177; Esparza, 32-38, 126-128; Andert, 36-42, 180-183; MacLaren, 124-128, 137-139; Slaughter, 113-115, 161; Brown, 27-30, 129-132.). Plaintiffs actually relied on CalPERS, including when signing the putative contracts for increases. (Ibid.)

Terms: “present value,” solely at members’ cost, promised increases. Plaintiffs received the same or similar standardized form contracts and publications that CalPERS used across the class in promoting and transacting military/airtime investments. (Marzec, 69-70, 143-146; R.Healy, 56-57, 214-215; Esparza, 68, 97-98; Andert, 53, 169-170; MacLaren, 116-117, 184-187; Slaughter, 91-100; Brown, 31, 83.) Plaintiffs were instructed by CalPERS to only use and rely on its standardized writings and non-negotiable form contracts. (Ibid.) The writings were CalPERS’ official channel of communication. (Ibid.) In multiple steps in sequence, CalPERS required all the Plaintiffs to use the same or similar forms, requiring each individual to read, complete and sign the forms. (Ibid.)

Present value. In same or similar policy and use of forms, CalPERS presented the investment as a no-risk or “present value” contribution for increases commensurate with the amount of Plaintiffs’ investments (Ibid.) CalPERS promised larger increases for larger invest-ments. (Ibid.) Investing at “present value” or without risk, Plaintiffs were informed that they would contribute money that will be invested by CalPERS to fund the monthly increases over the individual’s lifetime, with no contribution by CalPERS or the employers. (Ibid.; Jensen, 51-54.)

Contracted for increases. Plaintiffs invested for future increased payments. (Ibid.) CalPERS allowed Plaintiffs to invest by lump sum or installments. (Marzec, Exh. 11; Healy, Exh. 17; Esparza, Exh.8; Andert, Exh.6; MacLaren, Exh.8; Slaughter, Exh. 7; Brown, Exh. 7.) CalPERS charged interest on installments, indicating to Plaintiffs that it was a financial investment where CalPERS bore the investment risks. (Ibid.) Plaintiffs could only negotiate the amount of investment and installment. (Marzec, 289; R.Healy, 215; Esparza, 270; Andert, 101-103; MacLaren, 187; Slaughter, 92; Brown, 31.)

Acted consistent with increases. Some Plaintiffs mortgaged their homes, others rolled over their 457 accounts, and others planned financially and relied on the increases. (Marzec, 153-154; R.Healy, 122-125; Esparza, 99-100; Andert, 99-102; MacLaren, 119; Slaughter, 100, 123-129; Brown, 107-108.)

No warnings about risk of loss or offset, lack of promised increases, no refunds. When Plaintiffs called or visited CalPERS’ office, CalPERS’employees regularly would not talk or advise orally and instead told Plaintiffs to read CalPERS written materials. (Marzec, 69, 146; R.Healy, 54; Esparza, 108-111; Andert, 85; MacLaren, 43, 152; Slaughter, 68; Brown, 50-51.) CalPERS’ standardized information was inadequate, inaccurate, and misleading. In same or similar policy and use of standardized forms, CalPERS omitted, misrepresented, and failed to disclose the significant risk of loss, no refunds, IDR offset, transfer to employer, and other significant risks that CalPERS knew were particular to safety member. (Marzec, 305-307; R.Healy, 90-99; T.Healy 57-75; Esparza, 161-163; MacLaren, 66-74; Slaughter, 80-90.) CalPERS used the same form contract for safety members entitled to IDR as for members who could never be entitled to IDR. (Jensen, 66-72.) CalPERS’ forms did not mention IDR. (Marzec, 151-158; R.Healy, 90-99; T.Healy, 57-75; Esparza, 161-175; Andert, 93-94, 112-113; MacLaren, 66-74; Slaughter, 95; Brown, 86-88.) CalPERS failed to disclose that retiring with IDR could cause the loss of the monetary value of the investment. (Ibid.) CalPERS failed to disclose that it was adverse or that it or the employers could receive some of the funds (Marzec, 159-179; R.Healy, 127-146; Esparza, 119-135; Andert, 172-190; MacLaren, 129-146; Slaughter, 225-249; Brown, 119-140.) Plaintiffs were not informed, did not understand, and did not agree to assume a risk of loss, no refunds, the IDR offset, the transfer to employer, no “present value” increases, and other material adverse terms. (Ibid..)

Object of contract. CalPERS misrepresented or failed to disclose the object of the contract. Plaintiffs invested for increases without risk. CalPERS now argues that it sold something substantially different i.e., “service credit” that it transferred into “normal contributions.” Even after investing, CalPERS accounted to Plaintiffs that it deposited the money in Plaintiffs’ account. (Marzec, 157, 180-182; R.Healy, 122-126; Esparza, 99-105; Andert, 114-115; MacLaren, 119-122; Slaughter, 102, 129; Brown, 108-110.) Service credit has no financial value in itself, and no value at all in the context of IDR. (Jensen, 47-49; Gov’t Code, §21151(a).)[1]

Ambiguous terms. CalPERS used ambiguous terms or used terms differently than generally understood. Plaintiffs found CalPERS’ terms “present value”, “contribution”, “service credit”, “considering” and others to be ambiguous or contrary to common understanding. (Marzec, 110-127; R.Healy, 103-118; T.Healy 77-80; Esparza, 167-175; Andert, 93-94; MacLaren, 100-112; Slaughter, 264-265; Brown, 65-76.) In the multi-page adhesion contracts used after 2003, CalPERS wrote a single ambiguous sentence with this or similar language: “If you are considering disability retirement, this service credit may not benefit you.” This sentence failed to inform them of a risk of loss of their money, loss of the increases, no refund, IDR offset, a transfer to their employer, or other material adverse terms. (Ibid.)

Read and signed CalPERS’ form contracts. Plaintiffs read and signed CalPERS’ nonnegotiable form contract. (Marzec, 153. Exh. 11; R.Healy, 122-123, Exh. 17; Esparza, 99-100, Exh. 8; Andert, 111, 225, Exh. 6; MacLaren, 119, Exh. 8; Slaughter, 100, 134, Exh. 7;Brown, 101-108, Exh. 8.) CalPERS required each Plaintiff to sign the same or similar standardized form contracts when each invested between $17,500 and $91,000. (Ibid.)

No consent to adverse terms. Plaintiffs did not agree to or assume the risks which were inconsistent with “present value” and “increases” terms. (Marzec, 159-179; R.Healy, 127-146; Esparza, 119-135; Andert, 172-190; MacLaren, 129-146; Slaughter, 225-249; Brown, 119-140.) Each Plaintiff did not consent to and did not assume a risk of loss of their money, a loss of the increases, no refund, a transfer to CalPERS or their employer, an IDR offset, or a loss if retired with IDR before age 50, and other averse terms. (Ibid.) Their IDR was already fully vested.

Mistake. Plaintiffs were mistaken as to the material terms. Each Plaintiff was mistaken as to the facts, including the increases and no refunds terms. (Ibid.) Each Plaintiff was legally mistaken, including about no refunds, which CalPERS knew but did not correct. (Ibid.)

Plaintiffs’ injury, losses, and harm. Sometime after investing, Plaintiffs were physically injured on the job. (Marzec, 183-188; R.Healy, 147-155; Esparza, 136-142; Andert, 191-202; MacLaren, 147-151; Slaughter, 153-161; Brown, 141-143.) Each injury was deemed to be industrial. (Ibid.) Each Plaintiff retired with IDR. (Ibid.) As a result of retiring with IDR before age 50, each named Plaintiff receives only the 50% IDR payment that each was entitled to before contracting. No refunds of their investments were provided. They receive no increase, no advantage and no benefit for the money invested. (Marzec, 196-208; R.Healy, 187-191; Esparza, 180-187; Andert, 220-227; MacLaren, 191-197; Slaughter, 163-173; Brown, 152-179.)

No notice of harm. At the time of investment through retiring, CalPERS did not provide Plaintiffs any notice about the loss, transfer, IDR offset, or risks. (Marzec, 151-179; R.Healy, 90-99. 127-146; T.Healy 57-75; Esparza, 119-13, 161-175; Andert, 112-113, 172-190; MacLaren, 66-74, 129-146; Slaughter, 95, 225-249; Brown, 86-88. 119-140.) At retirement, CalPERS provided no explanation, no due process, and no appeal rights. (Marzec, 227-231; R.Healy, 216-219; Esparza, 196-199; Andert, 291-296; MacLaren, 204-208; Slaughter, 186-191; Brown, 216-222.) By receipt of a 50% IDR check, Plaintiffs did not recognize they were harmed. (Marzec, 196-220; R.Healy,187-191; Esparza, 180-195; Andert, 230-238; MacLaren, 164-169; Slaughter, 171-178; Brown, 152-157.) CalPERS provided no explanation of what happened to their money. (Ibid.) After the fact, CalPERS offered some of those on installment plans a forced waiver of the right to refunds to suspend future payments (Andert, Exh. 21, 23; Brown, Exh. 14, 15.)

CalPERS’ attempt to force waiver of refunds after the fact. After the IDR process was complete, then CalPERS for the first time wrote to those who still had unpaid installments, adding new terms in a 2-page waiver after the fact:

 

…Government Code 21039 is clear in stating that the payments are suspended on a prospective basis meaning there will be no refund of payments that were made prior to this election. …

 

I understand there will be no refund of payments already made.

               [CalPERS’ request for Plaintiffs’ signature and date]

 

(Andert, Exh. 21, 23; Brown, Exh. 14, 15)

 

CalPERS did not disclose these terms before contracting.(Andert, 230-248; Brown, 152-157.) This far more expansive language in the 2-page waiver shows how ambiguous, defective, and misleading CalPERS’ original contract language was. (Compare Andert, Exh. 21, 23, and Brown, Exh. 14, 15, with contract disclosures in Marzec, Exh. 11; R.Healy, Exh. 17; Esparza, Exh. 8; Andert, Exh. 6; MacLaren, Exh. 8; Slaughter, Exh. 7; Brown, Exh. 8.)

Compounding the wrong, CalPERS only gave this information to Plaintiffs making installment payments. CalPERS threatened that “failure to sign …” would cause CalPERS to deduct still more money out of the reduced IDR check each month, for nothing. (Andert, Exh. 21; Brown, Exh. 14.) Taking advantage, CalPERS benefitted from forcing a waiver of refunds.

Plaintiffs’ request for rescission, interest, and fees. Each Plaintiff seeks rescission of the investment contract and restitution of their investment. (Marzec, 261; R.Healy, 254; Esparza, 259; Andert, 349 MacLaren, 248; Slaughter, 253; Brown, 265.) Each seeks to be made whole. (Ibid.) Each seeks restitution, interest from the date of deposit of the funds, consequential damages, as well as attorney fees and other costs and relief to make them whole. (Ibid.) Those who signed the waiver seek rescission of it. (Andert, 367; Brown, 281.)

Plaintiffs assert delayed discovery, delayed accrual. Plaintiffs’ discovery of the harm and accrual of the causes of action is delayed. (Marzec, 212-220, 256; R.Healy, 234-240; Esparza, 183-195; Andert, 272-278, 344; MacLaren, 199-203; Slaughter, 171-185; Brown, 210-215, 257-261.) CalPERS was the sole source of official information, sole administrator of their retirement benefits. Plaintiffs were ignorant of the harm which was disguised and hidden by CalPERS as a fiduciary and as a result of mistake. (Ibid.) Plaintiffs understood that CalPERS told them that they had not suffered harm. (Ibid.) Plaintiffs relied on CalPERS, including to not sue. Others justifiably relied or were presumed to rely on CalPERS, including not to sue. (Ibid.) Plaintiffs had invested for increases at age 50, and none were yet 50. (Marzec, 213; R.Healy, 190; T.Healy, 81; Esparza, 147, 180; Andert, 284; MacLaren, 69; Slaughter, 183; Brown, 159-162.) The hidden and opaque nature of CalPERS’ accounting of the investment and retirement allowance, the lack of notice, the mistake, and the difficulty to discover the nature of the harm, delayed the discovery and accrual of the cause of action. (Marzec, 212-220, 256; R.Healy, 234-240; Esparza, 183-195; Andert, 272-278, 344; MacLaren, 199-203; Slaughter, 171-185; Brown, 210-215, 257-261.) Plaintiffs relied on and were presumed to rely on CalPERS until notified by it that they suffered harm or that CalPERS was adverse to them. CalPERS gave no notice.

 

   [1] Apparently CalPERS did not turn the money into valueless “service credit” until Plaintiffs were later determined industrially disabled.