Retirement Association Should Have Notified Employee That Withdrawal of Retirement Contributions Would Preclude Any Revision of Her Disability Status

Category: Client Update
Date: Jan 23, 2015 01:21 PM

Monica Hudson became a deputy with the Los Angeles County Sheriff's Department (Department), and a member of the Los Angeles County Employees Retirement Association (LACERA) in 1998.  She alleges that she sustained on-duty service-related injuries to her left and right knees in December 2000 and March 2001, respectively, for which she received benefits under Labor Code section 4850.  In September 2004, the Department filed an application to LACERA for a disability retirement on Hudson's behalf based on her left-knee injury.  The following month, Hudson filed her own disability retirement application claiming on-duty injuries to both knees. 

In January 2005, the Department terminated Hudson's employment for misconduct.  Hudson appealed to the Los Angeles Civil Service Commission.  Before the appeal hearing could be held, LACERA determined that Hudson's right-knee injury was not service-related, and that she would not be entitled to service-connected disability benefits.  Because she was credited with less than five years of service with the Department, she would not be entitled to a disability allowance.  Because Hudson would not receive retirement benefits, LACERA gave Hudson the option of withdrawing her accumulated retirement contributions.  She withdrew her contributions in December 2006 due to economic need. 

In February 2008, the Civil Service Commission determined that the Department's termination of Hudson's employment had not been justified.  It ordered the Department to restore Hudson's employment as a deputy sheriff.  Instead of complying, the Department mailed Hudson a "Notice of Medical Release" informing her that she was released from her position as a deputy sheriff as a result of her right knee injury.  Hudson entered into an unwritten agreement with the Department that she would be permitted to return to work in an unsworn position until LACERA could reexamine her medical eligibility to return to her position as a deputy sheriff.  If medically fit, she would be immediately reinstated as a deputy sheriff.  If LACERA determined that she remained disabled, she would be reinstated as a civilian custody assistant.  This agreement was confirmed in an August 2008 letter from the Department's attorney.  Shortly thereafter, Hudson's doctor released her for full-time work as a deputy sheriff.

In December 2008, Hudson and the Department entered into a written settlement agreement, pursuant to which Hudson would return to work in a temporary custody-assistant assignment, undergo a medical evaluation and obtain a new disability determination from LACERA, and either return to work as a deputy sheriff if LACERA found she was no longer disabled or be hired as a permanent custody assistant if she remained disabled.  However, LACERA refused to reevaluate Hudson's eligibility for employment as a deputy sheriff because her LACERA membership ended when she withdrew her contributions in December 2006.  Counsel for the Department and for LACERA orally agreed that LACERA and the Department would agree to comply with any recommendations made by the doctor who had determined Hudson's permanent disability for LACERA in 2005.  The doctor reexamined Hudson and determined that she was fit for unrestricted duty as a deputy sheriff.  Hudson provided the Department this information and requested immediate reinstatement as a deputy sheriff, but the Department refused to reinstate her. 

Hudson filed suit against the Department, Sheriff Leroy Baca, and LACERA (Defendants) seeking specific performance of the parties' December 2008 settlement agreement and a writ of mandate requiring the Department to reinstate Hudson's employment as a deputy sheriff with back pay and benefits.  Hudson also sought a declaration stating that she was permitted to repay the retirement contributions she withdrew from LACERA and then to be treated like any other LACERA member with respect to reevaluation of her disability status.  Defendants filed various motions seeking to dismiss the action.  Ultimately, the trial court granted the motions, denied Hudson's petition for writ of mandate, and entered judgment in favor of Defendants.  Hudson appealed, and the Court of Appeal reversed.  

First, the Court of Appeal held that the trial court erred in granting judgment on the pleadings and dismissing the petition for mandate to restore Hudson's employment.  The trial court had held that the Civil Service Commission's order requiring the Department to restore Hudson's employment was unenforceable because it was superseded by the parties' subsequent settlement agreement.  However, that was one interpretation of the agreements, and it was not the only reasonable interpretation.  Nothing in the written settlement agreement or the oral agreements indicated an express intention to negate or supersede the Commission's order or to waive Hudson's right to the benefits of the order.  Therefore, the trial court should not have granted Defendants' motion for judgment on the pleadings without leave to amend.  Leave to amend must be granted unless the defect cannot be cured by amendment.  Hudson should have been granted the opportunity to amend her complaint to cure the defect. 

The Court of Appeal also held that the trial court erred by finding that the Civil Service Commission lacked the authority to review Hudson's discharge once LACERA granted her a disability retirement in May 2004.  The trial court's finding was based on two prior Court of Appeal cases that stand for the proposition that the Commission only has authority to address matters involving a member of the civil service, and therefore lacks jurisdiction once a person separates from civil service.  However, in both of those cases, the employee voluntarily resigned from service.  In this case, Hudson did not unequivocally express an intention to forever abandon her Department employment.  The Department, not Hudson, initiated the disability retirement process. Further, it is not uncommon for a person's disability status to change with medical treatment and with the passage of time.  In fact, LACERA is required by law to reevaluate the disability status of retirement beneficiaries, and to reinstate them to employment when disabilities no longer justify a disability retirement.  For those reasons, the Court of Appeal held that Hudson's disability retirement did not divest the Commission of authority to rule on her appeal from the Department's termination of her employment and to order that the Department restore her employment.

The Court of Appeal then evaluated whether Hudson's withdrawal of retirement contributions ended LACERA's authority to reevaluate her disability status, and held that it did not.  The Department simultaneously argued that (1) the settlement agreement ended Hudson's right to enforce the Civil Service Commission order because the agreement recognized that LACERA had the exclusive authority to modify Hudson's nonservice-connected disability status; and (2)  LACERA lacked authority to make a determination regarding Hudson's disability status because Hudson ended her LACERA membership when she withdrew her retirement contributions.  The Court of Appeal held that the settlement agreement did not dictate either conclusion.  The Commission's order did not require Hudson to be assigned duties she was not qualified to perform. Once reinstated, she would be a LACERA member and subject to LACERA's evaluation of her capacity to serve.  Therefore, regardless of whether the settlement agreement is enforceable, it does not foreclose a determination that the Department owes a mandatory duty pursuant to the Commission's order to restore Hudson to employment.   

The Court of Appeal then addressed Hudson's petition for writ of mandate against LACERA, and held that the trial court erred by denying it.  The trial court found that by withdrawing her retirement contributions, Hudson knowingly waived future retirement benefits and was not entitled to further advice from LACERA.  It based its decision on a LACERA brochure, which states that "Taking a withdrawal of [retirement contributions] terminates your membership and you give up all rights to future retirement benefits from LACERA, including disability benefits."  LACERA had a fiduciary duty to fully inform Hudson that a consequence of withdrawing her accumulated retirement contributions would also be to preclude any future evaluation and revision of her disability status and to preclude restoration of her employment by the Civil Service Commission, and there was no evidence that LACERA fulfilled its fiduciary duties.  In fact, the LACERA brochure advised Hudson that even after withdrawing her contributions, she might be eligible for future employment and to redeposit her withdrawn contributions.  Because the trial court's finding that LACERA fulfilled its duties was not supported by the record, the Court of Appeal reversed the trial court's denial of mandate against LACERA.

For the foregoing reasons, the Court of Appeal reversed the judgments in favor of the Department and LACERA and remanded for further proceedings.   

Hudson v. County of Los Angeles (2014) 232 Cal.App.4th 392.

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