SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO DATE/TIME: JUDGE: 1:30 p.m. 08/12/2011 HON. ALLEN SUMNER DEPT. NO.: CLERK: 42 M. GARCIA DANIEL E. FRANCIS, Petitioner, v. BOARD OF ADMINISTRATION FOR THE CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM (CalPERS) et al., Respondents. Case No.: 34-2011-80000841 Nature of Proceedings: DEMURRER, MOTION TO STRIKE Following is the court's tentative ruling on respondent s demurrer to the petition and motion to strike allegations of the petition. The matter is scheduled to be heard in Department 42 on August 12, 2011, at 1:30 p.m. The tentative ruling shall become the court s final ruling unless a party wishing to be heard so advises the clerk of this Department no later than 4:00 p.m. on the court day preceding the hearing, and further advises the clerk that such party has notified the other side of its intention to appear. Background Petitioner seeks a writ of mandate, injunctive and declaratory relief invalidating the membership of J. Clark Kelso in respondent CalPERS. Petitioner alleges that Kelso, as the Receiver for the California Prison Health Care System under appointment of the U.S. District Court, is ineligible for CalPERS membership because he does not meet the statutory membership requirement that he be employed by the state and compensated with funds at least partly controlled by the state. (See Gov. Code 20028, 20069, 20370, 20380.) By order filed January 23, 2008, the U.S. District Court appointed Kelso to serve as the Receiver in Plata v. Schwarzennegger, Case No. C01-1351 TEH. (Petition, Exhibit 2.) Immediately prior to his appointment, Kelso was employed as the Chief Information Officer of the California Department of Technology Services and a member of CalPERS by virtue of that employment. (Respondents Request for Judicial Notice ( RJN ) at 7.) Effective March 25, 2008, Kelso s employment with the Department of Technology Services terminated. (Ibid.) The next day, March 26, 2008, Kelso was appointed by the Judicial Council, through the Administrative Office of the Courts

( AOC ), to a position of Federal Court Consultant. (Respondents RJN at 6-7.) The AOC then loaned Kelso to the California Prison Health Care Receivership Corporation ( Corporation ) pursuant to an agreement between the AOC and the Corporation executed March 25, 2008. (Petition, Exhibit 3.) As required by statute, the AOC reported Kelso s appointment to CalPERS. (Respondents RJN at 6, 10.) In June 2009, Linda Buzzini retired from her employment with the Corporation and requested that her service and compensation with the Corporation be included in calculating her CalPERS retirement benefits. (Respondents RJN at 18-22.) In her request listing the circumstances warranting inclusion of her Corporation employment in calculating her CalPERS benefits, Buzzini cited the fact that Kelso, the Receiver and head of the Corporation, was enrolled as a member of CalPERS. (Respondents RJN at 14, 16, 20.) By letter dated June 7, 2010, CalPERS denied Buzzini s request. CalPERS concluded that her employment at the Corporation did not constitute employment by the state and thus did not qualify her for CalPERS membership. (Petition, Exhibit 5.) Buzzini appealed this denial. (Respondents RJN at 23.) In denying Buzzini s request, CalPERS addressed the fact that Kelso was an a member of CalPERS while serving as Receiver. (Id. at 6.) CalPERS stated this arrangement was based upon a specific agreement between the AOC and the Corporation; CalPERS would continue to review the agreement between the AOC and the Corporation in accordance with applicable law; and CalPERS would take any appropriate actions as a result of this review. (Ibid.) Thereafter, by letters to Kelso, the AOC and the Corporation dated January 25, 2011, CalPERS issued a determination that Kelso remained eligible for CalPERS membership on the basis of his AOC employment because, pursuant to Government Code section 200028, he was a common law employee of the state and was paid out of funds directly controlled by the state. (Respondents RJN at 24, 26, 28.) In addition, CalPERS concluded that the loan of Kelso s AOC position to the Corporation was permissible pursuant to Government Code section 20284. (Ibid.) Demurrer The Petition alleges three causes of action against respondents for accepting Kelso s membership in CalPERS. First, acceptance of Kelso s CalPERS membership violates respondents duties under the California Constitution, Article XVI, section 17, subdivisions (c) and (d). Second, acceptance of Kelso s CalPERS membership breaches respondents duty to determine who is a state employee under Government Code section 20028. Third, acceptance of Kelso s CalPERS membership constitutes a gift of public funds in violation of the California Constitution, article XVI, section 6. Respondents demur to all three causes of action, on three grounds: First, the court lacks jurisdiction to hear any of petitioner s claims because he failed to exhaust his - 2 -

administrative remedies of requesting hearing by CalPERS. (Code Civ. Proc. 430.10, subd. (a).) Second, petitioner failed to join Kelso, the AOC and the Corporation, who are necessary parties pursuant to Code of Civil Procedure section 389. (Code Civ. Proc. 430.10, subd. (d).) Finally, petitioner fails to establish he has standing to bring this suit, either as a member of CalPERS, or more generally as a taxpayer. (Code Civ. Proc. 430.10, subd. (e).) 1 Petitioner moves to strike respondents demurrer, their motion to strike, and their answer on the ground these pleadings were not timely filed and served. 1. Respondents pleading were timely filed and served. Petitioner contends respondents failed to file and serve their demurrer, motion to strike and answer within 30 days of receiving service of the petition, as required by Code of Civil Procedure sections 430.40 and 435. He points out respondents were personally served with the petition on April 29, 2011; the thirtieth day after service was Sunday, May 29, 2011; and respondents did not file their pleadings until Tuesday, May 31, 2011. Petitioner, however, fails to note that May 31 was the first day following court holidays on Sunday and Monday (Memorial Day). Respondents filing of their pleadings on May 31 was thus timely pursuant to Code of Civil Procedure sections 12, 12a and 12b. Petitioner argues respondents pleadings were nevertheless not timely served because service was not reasonably calculated to ensure delivery of the pleadings not later than the close of the next business day after the papers are filed, i.e., not later than the close of June 1, 2011. 2 Petitioner contends such service is required by subdivision (c) of Code of Civil Procedure section 1005. It is not. Respondents demurrer and motion to strike are moving papers, whose service is governed by Code of Civil Procedure section 1005, subdivision (b). In contrast, subdivision (c) of section 1005 governs only the service of opposition and reply papers. Respondents pleadings met the requirements of subdivision (b) -- that moving papers be served 16 court days before the date they will be heard. Additionally, Code of Civil Procedure section 1013a, paragraph (3), provides that service is presumed invalid only if there is more than a one-day difference between the postage meter date and the date of service on the proof of service. 1 Respondents object to petitioner s request for judicial notice in their reply to petitioner s opposition to their demurrer. It is unclear which requests for judicial notice respondents are objecting to. Before the court can properly rule on respondents objection, respondents must clarify the objection. 2 Petitioner points out that respondents proof of service establishes that the pleadings were deposited with the U.S. Postal Service on May 31, 2011. However, the postage meter date on the envelope containing the pleadings was June 1, 2011. Petitioner states he did not receive the pleadings until the afternoon of June 3, 2011-3 -

2. Petitioner did not fail to exhaust his administrative remedies. Respondents contend petitioner failed to exhaust the administrative remedy of requesting hearing by CalPERS, as provided in Government Code section 20134. Because exhaustion of available administrative remedies is a jurisdictional prerequisite to judicial action, respondents argue the court lacks jurisdiction to hear petitioner s claims. The court is not persuaded. Government Code section 20134 authorizes the CalPERS Board of Administration, in its discretion, [to] hold a hearing for the purpose of determining any question presented to it involving any right, benefit, or obligation of a person under [the Public Employees Retirement Law.] Such a discretionary and undefined authority does not constitute an available administrative remedy that petitioner must exhaust. The requirement that administrative remedies be exhausted before seeking judicial relief does not apply where, as here, no statute, rule or regulation establishes a clearly defined set of procedures under which petitioner is entitled to submit his claim to an administrative entity and have it evaluated and resolved. (See Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 441; Unfair Fire Tax Committee v. City of Oakland (2006) 136 Cal.App.4th 1424, 1429-1431; Jacobs v. State Board of Optometry (1978) 81 Cal.App.3d 1022, 1029.) Respondents demurrer pursuant to subdivision (a) of section 430.10 is overruled. 3. Petitioner failed to join indispensable parties. Respondents persuasively argue that Kelso, the AOC and the Corporation must be joined as parties to this action pursuant to subdivision (a) of Code of Civil Procedure section 389. There is no credible reason to doubt that all three are subject to service of process. Their joinder would not deprive the court of jurisdiction over the subject matter of this action. And their interests would be necessarily and substantially affected by the relief petitioner seeks. (See Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 808-809, Sierra Club, Inc. v. California Coastal Com. (1979) 95 Cal.App.3d 495, 501.) Petitioner seeks to invalidate Kelso s membership in CalPERS, which would result in loss of Kelso s retirement and health benefits. Such a ruling would also substantially undermine the terms of the agreement between the AOC and the Corporation regarding the loan of Kelso. (Petition, Exhibit 3, 3.7.) Because respondents do not share the rights and obligations of Kelso, the AOC or the Corporation which are the subject of this action, respondents cannot be expected to represent those rights and obligations in the same way as Kelso, the AOC or the Corporation would. Petitioner cites the case of City of San Diego v. San Diego City Employees Retirement System (2010) 186 Cal.App.4th 69, 85, as allowing him to proceed without joining Kelso, the AOC or the Corporation. It does not. City of San Diego involved strictly legal issues, where the pension system and its beneficiaries had the same interest. Here, the question of Kelso s eligibility for CalPERS membership - 4 -

involves a mixed question of law and fact, whose resolution may depend on information in the sole possession of Kelso, the AOC and/or the Corporation. Additionally, a judgment in this action invalidating Kelso s membership in CalPERS would not be binding on Kelso, the AOC or the Corporation. They would thus be able to collaterally attack any judgment rendered by this court, and respondents would potentially be exposed to multiple and conflicting liabilities in subsequent litigation brought by Kelso, the AOC and/or the Corporation to enforce their rights left unaddressed by this litigation. For these reasons, the criteria of Code of Civil Procedure section 389, subdivision (a)(2), requiring joinder of Kelso, the AOC and the Corporation are satisfied. Therefore, respondents demurrer on this ground is sustained. (Code of Civil Proc. 430.10, subd. (d).) Petitioner is ordered to (1) amend his petition to include Kelso, the AOC and the Corporation as respondents or real parties in interest; and (2) serve respondents Kelso, the AOC and the Corporation with the amended petition within 30 days of the order. (Code of Civil Proc. 389, subd. (a).) 4. The court requests further briefing on the issue of petitioner s standing to bring this action. Respondents contend that petitioner lacks standing to bring this action challenging CalPERS determination of Kelso s membership. Respondents argue petitioner does not have a sufficient beneficial interest in CalPERS s determination, nor does petitioner allege facts establishing taxpayer standing pursuant to Code of Civil Procedure section 526a. i) Petitioner lacks an individual beneficial interest Ordinarily, a party challenging governmental action must have a beneficial interest in the matter: The party must have some special interest to be served, or some particular right to be preserved or protected, over and above the interest held in common with the public at large. (Sacramento County Fire Protection Dist. v. Sacramento County Assessment Appeals Board (1999) 75 Cal.App.4th 327, 331, quoting Carsten v. Psychology Examining Com. (1980) 27 Cal.3d 793, 796.) The party must demonstrate that interest is concrete and actual, not conjectural or hypothetical. (Chiatello v. City and County of San Francisco (2010) 189 Cal.App.4th, 472, 480-481.) Petitioner alleges that, as a member of CalPERS, he is beneficially interested in respondents determination of Kelso s CalPERS membership. Petitioner argues that, as a member of CalPERS, he is entitled to have CalPERS s funds and membership administered in accordance with the law, and in particular that CalPERS not pay benefits to individuals such as Kelso who are not entitled thereto. (Petition, 34.) Petitioner also asserts in his opposition brief that, as a CalPERS member, he has a special interest in respondents discharge of their duties in the interest of CalPERS members under article XVI, section 17 of the California Constitution. - 5 -

As respondents point out, petitioner s allegations fail to demonstrate he has a special interest in the determination of Kelso s CalPERS membership over and above the interest of the public or CalPERS s membership at large. Whether viewed from the perspective of the general public or the perspective of a CalPERS member, petitioner s interest in the determination of Kelso s membership is attenuated and hypothetical. ii) The court requests further briefing on petitioner s standing as a taxpayer. Respondents argue petitioner also lacks standing as a taxpayer to challenge the determination of Kelso s CalPERS membership pursuant to Code of Civil Procedure section 526a. Citing Daily Journal Corp. v. County of Los Angeles (2009) 172 Cal.App.4th 1550, respondents contend petitioner may not use section 526a to challenge a determination over which CalPERS has broad discretion pursuant to Government Code sections 20120 and 20125, simply because he disagrees with the particular exercise of that discretion: Section 526a gives citizens standing to challenge governmental action and is liberally construed to achieve that purpose. Taxpayer suits are authorized only if the government body has a duty to act and has refused to do so. If it has discretion and chooses not to act, the courts may not interfere with that decision. [Citation.] The term waste under section 526a means something more than an alleged mistake by public officials in matters involving the exercise of judgment or wide discretion. To hold otherwise would invite constant harassment of city and county officers by disgruntled citizens and could seriously hamper our representative form of government at the local level. Thus, the courts should not take judicial cognizance of disputes which are primarily political in nature, nor should they attempt to enjoin every expenditure which does not meet with a taxpayer's approval. On the other hand, a court must not close its eyes to wasteful, improvident and completely unnecessary public spending, merely because it is done in the exercise of a lawful power. (Sundance v. Municipal Court (1986) 42 Cal.3d 1101, 1138-39.) In that sense, the limitations inherent in section 526a actions are founded in the separation of powers principle of our tripartite system of government. (Daily Journal Corp at 1157-1158.) After reviewing the parties briefs and the authorities cited therein, the court requests further briefing on the following questions before it rules on petitioner s standing under section 526a: 1. Is the determination of Kelso s eligibility for CalPERS membership a decision made pursuant to respondents broad discretionary authority under - 6 -

Government Code sections 20120 and 20125? If so, is it subject to a taxpayer suit under Code of Civil Procedure section 526a? (See Sundance v. Municipal Court (1986) 42 Cal.3d 1101, 1138-1139; Daily Journal Corp. v. Metropolitan News Company (2009) 172 Cal.App.4th 1550, 1558; Humane Society of the United States v. State Bd. of Equalization (2007) 152 Cal.App.4th 349, 356.) 2. Does every California taxpayer have standing to challenge each determination by CalPERS regarding an individual member s eligibility, coverage or benefit calculations? 3. CalPERS s demurrer assumes, arguendo at this stage, that petitioner s factual allegations are all true. Assuming petitioner s allegations are true, is CalPERS s determination of Kelso s eligibility for membership exempt from judicial review by a taxpayer challenge pursuant to section 526a? 4. Assuming, again arguendo, that petitioner s factual allegations are true, and that no CalPERS beneficiary or taxpayer has standing to challenge CalPERS s decision on Kelso s membership, is CalPERS s decision thereby exempt from any judicial review? Motion to Strike Respondents moved to strike petitioner s prayer for attorneys fees. In reliance on Wiley v. Rhodes (1990) 223 Cal.App.3d 1470, 1474, respondents contend petitioner failed to plead any legal basis for an award of attorneys fees pursuant to Government Code section 800 or Code of Civil Procedure section 1021.5. As petitioner points out, his prayer for fees is not governed by the Wiley case, which involved entry of a default judgment awarding punitive damages without notice in the complaint that such damages were sought. Here, petitioner s entitlement to attorneys fees under Government Code section 800 and/or Code of Civil Procedure section 1021.5 turns on whether petitioner prevails after adjudication of the merits. This question is appropriately addressed in post-judgment proceedings under rule 3.1702 of the California Rules of Court. Conclusion Respondents demurrer pursuant to subdivision (a) of Code of Civil Procedure section 430.10 is overruled. Respondents demurrer pursuant to subdivision (d) of section 430.10 is sustained, and petitioner is ordered to (1) amend the petition to include Kelso, the AOC and the Corporation as respondents or real parties in interest, and (2) serve Kelso, the AOC and the Corporation with the amended petition within 30 days of the order. - 7 -

The court defers ruling on respondents demurrer pursuant to subdivision (e) of section 430.10 pending joinder of Kelso, the AOC and the Corporation, and the filing of additional briefing by all parties on the issue of taxpayer standing addressed above. Schedule for the further briefing is to be set. Respondents motion to strike is denied. Counsel for respondents is directed to prepare orders consistent with this ruling pursuant to rule 3.1312 of the California Rules of Court. - 8 -