Plaintiffs will provide evidence that CalPERS was a fiduciary that knew or should have known (i) that CalPERS’ written representations in the original standardized forms (including of “increases”) were misleading and false as to safety members, (ii) CalPERS’ promises of “present value” or risk-free “increases” and its disclosure that “if you are considering disability, this service credit may not benefit you” are ambiguous and misleading including because they do not disclose the “no refunds” or the risk of loss provisions, (iii) the lack of disclosure of no refunds and loss were material omissions that CalPERS communicated across the class in writings that were the primary or sole means of communication, (iv) the language in CalPERS’ subsequent waiver about “no refunds” was not included or available to any class member before contracting, but only used in suspending the installments after injury to some plaintiffs, (v) CalPERS’ waiver seeking “no refunds” was an inappropriate and unlawful addition of new terms after the fact of injury and disability, unconscionable, and rescindable, (vi) by its waiver CalPERS admits that these terms are the required subject of consent and contract and (vii) that CalPERS did not get consent for “no refunds ” in the original contract and did not include the 2 page form waiver in material before contracting.
A trial regarding the content, adequacy, and propriety of CalPERS’ disclosure in the standardized forms, the original contract, and the waiver is readily manageable. Common legal questions include whether the no refunds term breached CalPERS’ fiduciary duty to disclose these risks before contracting, and allow rescission. Hittle v. Santa Barbara County Employees Retirement Assn.(1985) 39 Cal.3d 374, Marzec, et al. v. CalPERS (2015) 236 Cal.App.4th 889, Vasquez v. Superior Court (1971) 484 P.2d 964, 973;Massachusetts Mutual Life Ins. Co. v. Sup. Ct. (2002) 97 CA4th 1282, Occidental Land, Inc. v. Sup. Ct. (1976) 18 C3d 355. In addition, common legal questions include whether CalPERS failed to disclose CalPERS’ adversity, breached CalPERS’ fiduciary duty of loyalty in transferring some of the funds to itself or the employer, failed to get consent to these terms, legal mistake is present, consideration failed, and the original contracts and waivers are rescindable as described below. (Ibid)
Forms Distributed Across Class. The trial plan shows that there are few or no legal or factual variations between class members claims regarding CalPERS’ distribution of the forms across the class. Plaintiffs prove that CalPERS distributed standardized adhesion contracts across the class in a serial set process where each class member had to read one set before proceeding to the next set. CalPERS required each class member to sign the standardized nonnegotiable form contracts. Plaintiffs will also prove that CalPERS communicated predominantly or only through its written materials, and that CalPERS staff as a policy and practice directed the Plaintiffs and class members to gain information, and to contract only through the use of CalPERS’ standardized form and adhesion contracts. The overriding similarity of the contracting forms and materials that CalPERS distributed is a common issue. CalPERS has admitted that Plaintiffs have all of the CalPERS materials.
Reliance is presumed across the class when material misrepresentations have been communicated uniformly across a class, especially in a fiduciary context. (Ibid.)
Liability regarding rescission of standardized form contracts that were the sole means to contract and which contained material omissions or misrepresentations about risk-free or “present value” increases and which were actually distributed across the class in serial process and required signature at the time of investing tens of thousands of dollars of private money, has few or no individualized facts.
Liability. CalPERS’ liability is a legal question common to the class. The trial plan allows CalPERS to present all of its relevant and legitimate defenses individually and class-wide, including CalPERS’ class-wide defenses on the sufficiency of the disclosure.
Rescission is Available As a Remedy Across Class. Rescission is a legal remedy and appropriate across the class, including because class members receive nothing from the contracts. Rescission does not require equitable balancing or separate mini trials. Partial rescission is available to allow those who receive partial increases to rescind the part of the contract for those separate increments of investment that do not provide increases.
Amount of Restitution, Interest, and Numbers in Class Readily Ascertained. The amount of restitution and interest is readily determinable from CalPERS’ records. The class is ascertainable and largely ascertained already. The partial discovery of members since 2003 has disclosed that at least 177 police officers, fire fighters, correctional officers sand other safety members lost all their investment of over $11,000,000. In addition, about 70 or more safety officer lost partial investment of about $7,000,000. (See documents concurrently filed under seal.) In addition, the class extends to include to all safety members who invested since 1991 and includes other present value and service investments on CalPERS’ forms. They are also entitled to interest, attorney fees, costs, and otherwise to be made whole.
Class Action Elements. Plaintiffs will prove that (1) CalPERS has applied uniform customs, policies, or practices to communicate and transact with safety employees that invest in military/airtime and other optional “present value” or no risk service credit (Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 330.); (2) CalPERS’ standardize policy and practices used form contracts and publications across that class that contained material misrepresentations and omissions; (3) CalPERS knowingly or negligently withheld material information at the time of contracting, including about “no refunds”; (4) safety members were similarly situated at the time of CalPERS communication and contracting; (5) Plaintiffs are presumed to rely on the representations of CalPERS, including as a fiduciary to them; (6) Plaintiffs suffered from CalPERS breach of fiduciary duties; (7) Plaintiffs were factually and legally mistake; (8) Plaintiffs did not consent; (9) the consideration failed or there was no consideration; (10) Plaintiffs suffered harm, restitution, loss of interest, fees, costs, loss of investment, damages and diminution in value arising from CalPERS’ practices; (11) Plaintiffs are entitled to rescission; (12) CalPERS’ waiver shows that CalPERS knew but did not disclose the “no refunds” term prior to contracting and therefore sought a waiver of “refunds” selectively after-the-fact at the time that CalPERS sought to suspend the future installments; (13) the existence and amount of Plaintiffs’ restitution, recovery, interest, and fees can be proven and calculated across the class with certainty from known or ascertainable data from CalPERS’ records; (14) CalPERS’ defenses to rescission can be managed individually and on a class-wide basis; (15) CalPERS defenses class wide at contracting, such as that the disclosure was adequate, can be manageably tried; (16) CalPERS’ individual defense at contracting can be managed; (17) CalPERS’ class-wide defenses after contracting can be managed; (18) CalPERS’ individual defenses after contracting can be managed; (19), to the extent that factual question are in dispute, they can be managed at trial by statistics, sampling, surveys, or otherwise; (20) class action is the most efficient means of resolving class members’ claims; (21) the trial is manageable; and (22) the trial management plan is adequate under Duran. (Sav-On, supra.)
Fiduciary Duties And Recission
- CalPERS Has Breached Its Fiduciary Duties to Plaintiffs
CalPERS has breached and has indicated its intention to continue to breach its fiduciary duties to Plaintiffs by engaging in the policy and practice described herein.
CalPERS breaches its fiduciary duties, including by (i) transferring risk onto Plaintiffs; (ii) transferring risk onto Plaintiffs associated with loss of value of the investment upon being disabled; (iii) failing to disclose that it will pay no or only a partial additional “increase” for Military/ARSC/PVC if a safety Member retires with IDR; (iv) failing to disclose that a safety Member may lose some or all of their Military/ARSC/PVC investment if the Member retires with IDR before being eligible for a higher service retirement; (v) failing to adequately inform Members about the material terms of the Military/ARSC/PVC; (vi) dividing its loyalty such that some of the Plaintiffs’ Military/ARSC/PVC contributions do not benefit Plaintiffs but instead benefit CalPERS or the employers or others; (vii) failing to disclose a change in funding percentage and source for the defined benefits; (viii) failing to calculate the investment so that it is cost neutral; (ix) failing to disclose that the arrangement is not “cost neutral”; (x) failing to calculate the investment so that it is “present value” of increases received; (xi) failing to disclose that the arrangement is not based on “present value” pricing; (xii) failing to calculate the investment so that there is no offset; (xiii) failing to disclose the IDR or other retirement benefit offset or the benefit to employers; (xiv) failing to account; (xv) failing to account for the monies that do not provide a commensurate increase; (xvi) failing to account for the monies received that are not cost neutral; (xvii) failing to account for the monies received that are not present value; (xviii) failing to act in good faith; (xix) failing to exercise appropriate care; (xx) failing to act to the fiduciary standard required; (xxi) failing to deal fairly; (xxi) taking an advantage for itself or the employers or others; (xxii) retaining the amount of Plaintiffs’ money that does not provide a commensurate increase; (xxiii) failing to provide commensurate increases in a “present value” and “cost neutral” manner for each increment of the money that it retains; (xxiv) failing to return the funds that are not associated with commensurate increases; (xxv) filing to provide “specific notice” of safety Members’ rights; (xxvi) failing to take into consideration Plaintiffs’ vested IDR rights and how they were effected; (xxv) failing to inform in a manner that is not inherently ambiguous or uninformative; (xxvi) breaching its duty of good faith and fair dealing when it acts with even the slightest misrepresentation, concealment, threat, or adverse pressure of any kind; (xxvii) breaching its duty of good faith and fair dealing when it offset or reduced Plaintiffs’ vested rights or other account when the right was already fully vested; (xxviii) using Plaintiffs’ money invested for permissive service credit to provide a benefit that has already been provided or vested; (xxix) calculating Plaintiffs’ money invested for permissive service credit at a cost more than the commensurate benefit received; (xxx) entering into standardized transactions on nonnegotiable form contracts by which CalPERS, the Board, or the employers obtains an advantage from the class members; (xxxi) obtaining an advantage without sufficient consideration; (xxxii) retaining an advantage received by insufficient consideration or undue influence; (xxxiii) adding adverse material terms to a voluntary contract after the fact; (xxiii) seeking to enforce a waiver, (xxxiv) not providing due process or notice (xxxv) failed to take adequate precautions to protect Plaintiffs from having their funds transferred to or benefit their employers on taking IDR; (xxxvi) breaching its duty of good faith and fair dealing when it represented and transacted Military/ARSC/PVC for safety members on the same standardized forms as for non-safety employees; (xxxvii) breaching its duty of good faith and fair dealing when it sold Military/ARSC/PVC to Plaintiffs who CalPERS knew remained performing risky safety work but on whom CalPERS placed an increased risk of financial loss associated with disability; (xxxix) breaching its duty of good faith and fair dealing when it sold risky or speculative investments to Plaintiffs that are not suitable to safety employees; and (xxxx) in other ways described in this Third Amended Complaint.
CalPERS breached its mandatory fiduciary duties under the Constitution, statute (including the Civil, Government, and Probate Codes), case law, precedential decision, and common law.
CalPERS’ breach of fiduciary duty directly and proximately caused damage to class members, including loss or diminution in the value of all or part of their private funds, including under the presumption of reliance.
PLAINTIFFS’ CLAIMS: RESCISSION
Plaintiffs seek rescission of their investment (or “purchase”) contracts under statute (including Civil Code), case law, and common law, with restitution, interest from the date of deposit, and all other recovery to make them whole.
Plaintiffs invested to get “increases” in their future defined benefits, but Plaintiffs obtained something substantially different from that which each Plaintiff was led to expect. (Civil Code, §§1688,et seq., including §1689(b)(7).) Plaintiffs were entitled to rely and presumed to rely on CalPERS and its representations. For example, CalPERS represented that Plaintiffs were investing in increased future benefits. CalPERS’ representation did not adequately disclose that the investment money could be lost or transferred or offset in connection with their IDR or other matters if they were injured.
Examples include (i) Plaintiffs who retire with IDR before age 50 and are ineligible for service retirement (they receive nothing but the 50% of final compensation IDR allowance they were alreadyeligible for without the purchase of Military/ARSC/PVC, with no increase for Military/ARSC/PVSC) and (ii) Plaintiffs who retire with IDR after age 50 but have insufficient total service credit (that earned on the job, plus Military/ARSC/PVC) to receive more than 50% of final compensation.
Each safety members that retired with IDR signed the same or similar standardized form contract about Military/ARSC/PVC.
Each standardized form contract about Military/ARSC/PVC fails to adequately disclose, does not contain all material terms, omits adverse terms, and has other defects.
CalPERS’ forms and standardized non-negotiable contracts represented that it offered incremental investments in increasing amounts for greater proportional future retirement allowance increases.
CalPERS caused a failure of consideration, mistake, lack of consent, etc. when it said that the investment would provide proportionate commensurate increases for each level of investment, that it would be priced at “present value”, and did not disclose the risk of diminution or loss that is apparent in the examples described.
Each safety member that retired with an allowance that contains IDR has the right to elect rescission of their Military/ARSC/PVC investment contract and obtain restitution of the investment funds paid to CalPERS, plus interest.
Plaintiffs that suffer total losses are entitled to rescission.
Including as described in paragraphs 368-372, supra, Plaintiffs that suffer partial losses of their investment funds are entitled to rescission.
Rescission is based on “the totality of CalPERS’ disclosures to its members. Plaintiffs assert that as a result of those disclosures, their consent to the contracts was induced by mistake of fact and law, fraud, and undue influence, and enforcement of the contracts would be contrary to public policy.” (Marzec v. California Pub. Employees Ret. Sys., supra, at 914-15.)
“The consent of the parties to a contract must be: (1) Free; (2) Mutual; and, (3) Communicated by each to the other.” (Civil Code, §1565.) “Consent which is not free … may be rescinded by the parties, in the manner prescribed by the Chapter on Rescission.” (Civil Code, §1566.)
Plaintiffs seek rescission on the grounds that no agreement on the material and essential terms was ever reached, the parties lacked contractual intent, and thus no contract formed between Plaintiffs and CalPERS, including based on the presumption of reliance.
Plaintiffs are entitled to rely on CalPERS and are presumed to rely on CalPERS and its representations in the standardized form contract and publications, including that “present value”, “cost neutral” incremental investments would provide incremental increases without risk of loss of the principal or transfer to employer or the system or others.
Plaintiffs allege, including based on the presumption of reliance, that there was no mutual assent or contract formation as material terms were undisclosed and not agreed to. Any “consent” was not “free” and is thus void, so Plaintiffs seek rescission as a contract did not form. (Civil Code, §1566.)
Plaintiffs’ apparent consent, including based on the presumption of reliance, was not real as it was obtained through duress, menace, fraud, undue influence, or mistake. (Civil Code, §1567.)
Plaintiffs, including based on the presumption of reliance, would not have given consent but for misinformation, mistake, duress, menace, fraud, undue influence, or related defects. (Civil Code, §1568.)
Including based on the presumption of reliance, Plaintiffs’ “consent” to the Military/ARSC/PVC investment contracts was given by mistake, duress, fraud or undue influence by CalPERS, including as arising from CalPERS’ breach of its fiduciary duties, or otherwise resulting from, exercised by or with the connivance of CalPERS. (Civil Code, §§1565-1584 and 1689(b)(1).)
The “contracts” are subject to rescission and the consideration and money should be returned with interest.
Plaintiffs suffered one or more material “mistake(s) of fact” and/or “mistake(s) of law”, including based on the presumption of reliance. (Civil Code, §§1576-1578.)
The mistake(s) involved the present terms of the contract at time of signing, not a mistake(s) about future events. For example, Plaintiffs’ mistake(s) occurred at the time of signing the Military/ARSC/PVC contracts and the mistakes involved the effect and terms of the contract, including whether the contract authorized a loss of the value of the Military/ARSC/PVC investment money (or an IDR or other offset) if one retired with IDR in the future.
Plaintiffs were mistaken, including based on the presumption of reliance, about (1) the risk of loss of the investment; (2) the IDR or other offset; (3) a change in the source of funding of their defined benefits; (4) increase in their IDR or other contributions in amount and in source; (5) loss of funds or other reduction if they suffered an IDR; and (6) related matters.
As examples, Plaintiffs were mistaken and did not know (through no fault of their own) that (i) the investments in service credit were treated as “normal contributions” in the job at the time of purchase; (ii) that CalPERS assumes “service credit” was the same as the money invested; (iii) that the investment funds would be available to fund the IDR or other benefits, or to offset the employer’s IDR or other costs; (iv) that the investment could be lost; (v) that the IDR or other benefits funding could be changed; (vi) that the defined IDR or other benefit would be funded from sources other than their earnings; and (vii) other mistakes.
Plaintiffs were mistaken about one or more objective existing or nonexisting facts material to the contract. (Civil Code, §§1576-8.)
The mistakes concern a basic assumption upon which the Military/ARSC/PVC contract was made. The mistake has a material effect on the agreed exchange of performances under the Military/ARSC/PVC contract that is adverse to Plaintiffs. The Plaintiffs did not bear the risk of the mistake. And the effect of the mistake is such that enforcement of the Military/ARSC/PVC contract would be unconscionable.
Plaintiffs were not mistaken about the possibility that they might take IDR in the future. Each Plaintiff and each safety Member was aware of the real and present danger of injury and disability arising from the safety job. Each Plaintiff was aware and not mistaken about the possibility of being disabled on the job, and possibility that he or she might be injured and take an IDR.
Rescission Based on Mistake of Fact
Plaintiffs’ consent, including based on the presumption of reliance, was obtained by a “mistake of fact”. (Civil Code, §§1576, 1577). Plaintiffs understood the facts to be other than they were. Plaintiffs gave “consent” under a “mistake of fact” (not because of his or her “neglect of a legal duty”), because he or she was (i) ignorant of a past or present fact material to the contract, and/or (ii) believed in the present existence of something material to the contract that does not exist, or in the past existence of something that never existed. (Civil Code, §1577.)
CalPERS had reason to know of Plaintiffs’ mistake but did not inform Plaintiffs or correct their mistake. See infra paragraphs 442-445. Although legislation introduced as Assembly Bill 1146 was not enacted in 1991, the Legislature’s action put CalPERS on specific notice that safety Members were uninformed about material terms in the Military/ARSC/PVC credit purchases. Safety members were not put on notice by the unenacted legislation, but CalPERS was.
Rescission Based on Mistake of Law
A mistake of law occurred because Plaintiffs, including based on the presumption of reliance, knew the facts as they actually are but had a mistaken belief as to the legal consequences of those facts.
At the time of investing in Military/ARSC/PVC, Plaintiffs were already safety employees and knew that it was possible that they might have to take IDR, even before age 50 or before qualifying for a service retirement greater than 50% of highest compensation. Plaintiffs invested in Military/ARSC/PVC for increased future benefits, including based on the presumption of reasonable reliance on CalPERS. Plaintiffs were mistaken about the legal consequences of investing, including that they could lose the investment, suffer offset, make higher contributions to their IDR or other benefit, or receive no additional benefit, or other claims herein.
A mistake of law exists because the Plaintiffs misunderstood, including based on the presumption of reliance, the law at the time of contracting for Military/ARSC/PVC but CalPERS knew the “correct” law but did not rectify the other party’s misunderstanding. (Civil Code, §1578.) AB1146’s introduction in 1991 put CalPERS on specific notice that safety Members were uninformed about material terms.
It was not that the parties understood the contract in different ways, but rather that Plaintiffs misunderstood the law. Plaintiffs transferred money to CalPERS based on an understanding that the law allowed CalPERS to pay an “increased” allowance for Military/ARSC/PVC, but they were mistaken in that they did not understand that the law caused them to receive little or no proportionate increase and no refund.
The legislative history of proposed but not enacted legislation shows that CalPERS knew the law. It also shows CalPERS knew Plaintiffs misunderstood the legal consequences of the contract. (The proposed enactment is not notice of the law to Plaintiffs because of their different situations and because there are many alternative reasons that proposed legislation is not enacted.) Yet CalPERS understood the law, had notice of the proposed but rejected legislation, knew that Plaintiffs were mistaken, but failed to rectify the Plaintiffs misunderstandings. For example, even after the legislation was not enacted, CalPERS failed to create, produce, or distribute publications specifically for state and local safety Members to inform them of the specific legal consequences of Military/ARSC/PVC that are applicable to safety Members.
Before and after the legislation was introduced, CalPERS knew that Plaintiffs’ consent was obtained under a mistake of law, including as to the legal consequences of the contract terms, but CalPERS did not rectify the Plaintiffs’ misunderstanding by clarifying the forms and publications sufficiently to correct Plaintiffs’ mistake of law.
It is not that Plaintiffs subjectively misunderstood their contractual duties or other contractual terms, including based on the presumption of reliance, but rather that there was no disclosure sufficient to notify Plaintiffs that there was a risk of loss of investment, a change in the source of funding for the defined benefit, a change in the percentage amount for the defined benefit, a cross subsidy to the employer, offset terms, or other negative, inconsistent, or adverse terms in the contract.
It is not that CalPERS and Plaintiffs had differing subjective understandings of the contract from its inception, but instead it is that CalPERS failed to provide sufficient information to allow Plaintiffs to receive or to form an objective understanding of the material terms.
CalPERS’ breach of its duties caused or contributed to the Plaintiffs’ mistake. Plaintiffs performed all legal duties. Even if alleged, Plaintiffs’ “neglect of a legal duty” does not preclude rescission because “freedom from negligence” is not a prerequisite to rescission based on a mistake of law. (Civil Code, §1578.)
CALPERS Had Reason to Know About and Caused the Mistake; CalPERS Failed to Inform and Misinformed
CalPERS’ acts or omissions, including its breaches of fiduciary duties or inadequate information, caused or contributed to the Plaintiffs’ unilateral mistake of fact.
In particular, CalPERS was aware of legislation that was proposed but not enacted and still did not increase its disclosure adequately or otherwise seek to rectify the ongoing mistakes by Plaintiffs.
CalPERS’ failure to inform Plaintiffs adequately, especially under Hittle, caused or contributed to Plaintiffs’ mistake.
CalPERS had reason to know of Plaintiffs’ mistake, especially after 1991.
Duress or Undue Influence
Plaintiffs’ consent, including based on the presumption of reliance, was obtained through duress or undue influence, including because the parties to the contract were in a confidential relationship.
Plaintiffs demonstrate that their consent was procured through duress or undue influence, because (i) the Plaintiffs were entitled to rely on CalPERS’ promises to provide increases in future benefits; (ii) CalPERS was a fiduciary in a special relationship with Plaintiffs as their sole provider of IDR and service retirement benefits; (iii) CalPERS used adhesive form contracts not enacted at arm’s length and not subject to free negotiation; (iv) CalPERS’ standardized publications and form contracts failed to inform Plaintiffs of significant and material terms; (v) CalPERS provided no information on these risks to Plaintiffs’ (vi) Plaintiffs transferred tens of thousands of dollars, including of their tax-protected private retirement funds, to a government agency for increased future defined benefits; (vii) Plaintiffs were presumed to rely and reasonably relied on CalPERS’ representations to provide them with “increases” in their future defined benefits; (viii) Plaintiffs were presumed to rely and reasonably relied on CalPERS to structure the contract and to act in their best interest and without divided loyalties; (ix) Plaintiffs were presumed to rely and reasonably relied on CalPERS to place the Plaintiffs’ interests above others, including that of the employers (who were the only entities to benefit from the Plaintiffs’ investment in Military/ARSC/PVC by way of the IDR or other offset); (x) Plaintiffs did not agree to receive no or only a partial increased benefit; (xi) CalPERS failed to account for the investment; (xii) Plaintiffs did not knowingly waive any rights; (xiii) the consideration received by Plaintiffs in return for their investment was inadequate; and (xiv) other acts or omissions by CalPERS.
Fraud or Constructive Fraud
Plaintiffs’ consent, including based on the presumption of reliance, was obtained through fraud or constructive fraud. CalPERS perpetrated a fraud on Plaintiffs sufficient to support the Plaintiffs’ unilateral rescission of the Military/ARSC/PVC contracts because of CalPERS’ “actual fraud” (misrepresentation with intent to deceive, Civil Code, §1572) or “constructive fraud” (misleading conduct without fraudulent intent to the prejudice of the other party, Civil Code, §1573). (Civil Code, §§1571-1574; see also Hittle, supra, at 392-393.)
A presumption of constructive fraud arises here because the parties are in a confidential relationship. (See Civil Code, §1572-1573.)
A presumption of constructive fraud arises here because there is inadequate consideration for the rescinding party’s performance. (See Civil Code, §1572-1573; Hittle, supra, at 393-394.) CalPERS promoted and accepted Plaintiffs’ investment in Military/ARSC/PVC under the assertion, presumption, or representation that Plaintiffs funded and would receive a valuable “increase” in future benefits.
Even an innocent misrepresentation, made in good faith and with a reasonable belief in its truth, may provide a basis for rescission if it related to a material fact upon which the rescinding party relied in consenting to the contract. CalPERS’ “innocent” misrepresentation supports Plaintiffs’ right of rescission as a type of “mistake”. (Cal.Jur.3d, Rescission, §29.)
Substantive (and procedural) unconscionability is clearly present from (i) the special fiduciary relationship between the parties; (ii) CalPERS’ position as the sole provider of all retirement and IDR rights; (iii) the unequal bargaining power of the parties; (iv) the non-negotiability of the contracts; (v) the lack of disclosure in the form contracts, especially as relates to the specific risks to safety Members; (vi) the undisclosed change in the source of funding of the vested IDR or other defined benefits (from funding based on earnings contributions only, to inclusion of the investment); (vii) the change in the percentage of funding of the defined benefits; (viii) the cross-subsidy provided to the employer, even though Military/ARSC/PVC was promoted as “cost neutral”; (ix) the lack of specific information provided to safety Members who suffered a risk that others did not; (x) CalPERS’ awareness of a significant risk that was not able to be discovered by safety employees with reasonable diligence; (xi) the lack of good faith and fair dealing by CalPERS; (xii) the disappointment of the Plaintiffs’ reasonable expectations of increased benefits; (xiii) the loss of the Plaintiffs’ private retirement money that arose because Plaintiffs were injured on the job and retired with IDR; (xiv) the change in the IDR or other benefits funding; (xv) the oppression and surprise that resulted, including the surprise when Plaintiffs learned that the employers were the only entities that benefitted from the Plaintiffs’ large investment in Military/ARSC/PVC; (xvi) results that are inconsistent with a fiduciary–beneficiary relationship such that they shock the conscience; and (xvii) other matters.
Industrial disability retirement is an essential service to police officers, firefighters, correctional officers, and safety employees. IDR is an insurance-like service enacted by the Legislature to entice and to protect safety employees that perform dangerous jobs. The Legislature has determined that society in general bears the risk that accompanies providing these essential safety services. The individual employees should not bear a disproportionate share of the harm when the public in general benefits from them putting out fires, catching criminals, and assisting in dangerous situations. (CalPERS admits that IDR allowances are in the nature of workers’ compensation.)
Procedurally, CalPERS is the monopoly administrator, sole provider, and only official source of information on pension rights, Military/ARSC/PVC and IDR administration. CalPERS has vastly superior knowledge and bargaining power that results in the absence of meaningful choice and absence of other sources of information for Plaintiffs about their retirement, Military/ARSC/PVC, and IDR. Plaintiffs implicitly or explicitly rely on CalPERS to inform them sufficiently of all material terms.
In the case of safety Members, CalPERS uses its superior bargaining position to reduce the employers’ and CalPERS’ existing IDR or other liability and expenses by arranging to potentially offset CalPERS’, the state’s, or the contracting agencies’ existing IDR liability or other expenses (that arose at first safety employment) or other retirement benefit liability and expenses by having recourse to Plaintiffs’ investments in the event of Plaintiffs retiring with IDR (however this occurs without Plaintiffs’ knowledge or consent).
Plaintiffs are surprised when they learn (i) that they were not adequately informed; (ii) that CalPERS breached its fiduciary duties; (iii) that their employer may receive the benefit of their private monies; (iv) that their IDR or other defined benefits are partially funded by their own investments; (v) the terms of the Military/ARSC/PVC contract; and (vi) other information.
CalPERS’ contract terms and actions related to Military/ARSC/PVC impose harsh and oppressive results or consequences on disabled Plaintiffs that were not express or agreed to. CalPERS’ contract terms and actions frustrate the Plaintiffs’ purpose in investing in Military/ARSC/PVC, and obtaining IDR on the terms promised.
Enforcing the contract would yield overly harsh and one-sided results.
Failure of Consideration
Plaintiffs seek rescission based on failure of consideration.
Plaintiffs seek rescission because the consideration for the Plaintiffs’ obligation fails, in whole or in part, through the fault of CalPERS, the other party to the contract. (Civil Code, §1689(b)(2).)
Plaintiffs seek rescission because the consideration for the Plaintiffs’ obligation became entirely void from any cause, including based on the presumption of Plaintiffs’ reasonable reliance on CalPERS. (Civil Code, §1689(b)(3).)
Plaintiffs seek rescission because consideration for the Plaintiffs’ obligation fails in a material respect from any cause before it is rendered. (Civil Code, §1689(b)(4).)
Plaintiffs’ cause of action for rescission meets all three independent conditions – the consideration (benefit of some sort, whether pension increase or other advantage) for which Plaintiffs invested their money (i) failed, (ii) became void, or (iii) fails in a material respect before being rendered to Plaintiffs.
Plaintiffs have received only partial or no value, and have not received commensurate proportional value, from their investment and therefore seek rescission.
 The existence of a proposed legislation that was not enacted does not place Plaintiffs on notice of the risk of loss or other adverse terms, because proposed legislation can be defeated or not enacted for many reasons that are not clear or patent.
 Plaintiffs need not show that CalPERS caused or even knew of the mistake (Donovan v. RRL Corp.(2002) 26 Cal.4th 261-, 281-282 [adopting rule as California law and rejecting contrary cases]; see also Rest.2d, Contracts, §153(a).)