Memorandum of Points and Authorities in Support
Transcript of Memorandum of Points and Authorities in Support
I
2
aJ
4
5
6
7
8
9
10
11
12
13
t4
15
T6
t7
18
19
20
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ÂTTORNEYS AT LAW
Los ANGEL$MEMORANDUM OF POINTS AND AUTHORITIES ISO CEI-PERS DEFENDANTS' MSJ/}4SA
SHELDON EISENBERG (SBN 100626)ADAM J. THURSTON (SBN 162636)ERIN E. MCCRACKEN (SBN 244523)ALEXIS N. BURGESS (SBN 279328)Dnr¡{renBmole & ReerH LLP1800 Century Park East, Suite 1500Los Angeles, CA 90067-1517Telephone: (310)203-4000Facsimile: (310) 229-1285
Attorneys for DefendantsCALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM, ROB FECKNER,GEORGE DIEHR, MICHAEL BILBREY,RICHARD COSTIGAN, JJ JELINCIC, HENRYJONES, PRIYA MATHUR, ANd BILL SLATON
ELMA SANCHEZ, HOLLY WEDDING,RICHARD M. LODYGA and EILEENLODYGA, individually and on behalf of allothers similarly situated,
Plaintiffs,
v
CALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM, ROBFECKNER, GEORGE DIER, MICI{AELBILBERY, RICHARD COSTIGAN, JJ
JELINCIC, HENRY JONES, PzuYAMATHUR, BILL SLATON, TOWERSV/ATSON CO., TOWERS PERRIN,TILLINGHAST-TOWERS PERRIN, andDOES 12 through 100, inclusive,
Defendants'
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CaseNo.8C517444
MEMORANDT]M OF' POINTS AIIDAUTHORITIES IN SUPPORT OFCALPERS DEFENDANTS' MOTION FORSUMMARY JUDGMENT OR,IN TITEALTERNATIVE, SUMMARYADJUDICATION
Date:Time:Dept:Judge
Jurrc2,20171:45 p.m.308Hon. Ann Jones
8
1
2
âJ
4
5
6
7
I9
10
11
t2
13
t4
15
t6
t7
18
l9
20
2I
22
23
24
25
26
27
28
DRTNKER BTDDLE &REATH LLP
ATToRNEYö A1 LAw
TABLE OF CONTENTS
I. INTRODUCTION
II. STATEMENT OF FACTS......
A. Background
The Parties
The Contract........
The Rate Increases at Issue in This Litigation
Plaintifß' Claims Against the CaIPERS Defendants
III. ARGUMENT
A. Legal Standard.......
Statutorily Immune from Suit.
CaIPERS is Immune from Suit for Discretionary Acts. "............
The Individual Board Defendants Are Also Immune'
The CaIPERS Defendants Also Cannot Be Liable on the UncertifiedClaim for Breach of the Purported Duty to Provide Timely andAccurate Information.
C
D.
Multiple Reasons.
Page
B.
C.
D.
E.
.1
.2
.2
.4
.5
.7
.7
.8
.8
B Summary Judgment Should Be Granted on Plaintiffs' First Cause of Actionfor Breaðh of Fiduciary Duty Because the CaIPERS Defendants Are
9
I
2
3
9
T2
15
15
Summary Judgment Should Be Granted on Plaintiffs' Second Cause ofAction fór Bre-ach of Contract Because It Is Both Time-Barred and Alleges aTheory that Is Directly Contrary to the Language of the Contract.
1. Plaintiffs' breach of contract claim is barred as a matter of law by theapplicable statute of limitations. ...
2. Plaintifß' claim for breach of contract also fails on the meritsbecause the policy unambiguously permits CaIPERS to raisepremrums..
Summary Judgment Should Be Granted on Plaintifß' IJncertified ThirdCause of Actiõn for Breach of the Duty of Good Faith and Fair Dealing for
.18
22
E. SummaryAction forAction.....
Judgment Should Be Granted on Plaintiffs' Fourth Cause ofReJcission Because Rescission Is a Remedy, Not a Cause of
F. Summary Judgment Should Be Granted on Plaintifß' Fifth Cause of Action
1
MEMORANDUM OF POINTS AND AUTHORITMS ISO CEI-PERS DEFENDANTS' MSJ/IVÍSA
24
I
2
aJ
4
5
6
7
8
9
10
t1
t2
13
t4
15
t6
T7
18
19
20
21
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYs AT LAW
Los ANGELESMEMORANDUM OF POINTS AND AUTHORITES ISO CALPERS DEFENDANTS' MSJ/I\4SA
for Declaratory and Injunctive Relief. .
IV. CONCLUSION
25
.',,,,....25
-11-
I
2
aJ
4
5
6
7
I9
10
l1
t2
13
t4
15
l6
17
18
t9
20
21
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYS AT LAW
Los ANGELESMEMORANDUM OF POINTS AND AUTHORITIES ISO CEI-PERS DEFENDANTS' MSJ/}4SA
15
TABLE OF AUTHORITIES
C¡,sns
Aguilar v. Atlantic Richfield Co.,25 Cal. th826 (2001)
Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co',116 Cal. App. 4th 1375 (2004)...............
Award Metals, Inc. v. Superior Court,228 CaL App. 3d 1128 (1991) ............
Caldwell v. Montoyo,10 Cal. 4th972 (1995)
Carl v. State,2009NCBC LEXIS 36 OI.C. Super. Ct. 2009)
Carma Developers (Cø1.), Inc. v. Marathon Development Cal', Inc',2 Cal.4th342 (1992)
Chaidez v. Board of Administration of California Public Employees' Retirement
System,
223 Cal. App. 4th 858 (2014).......
City of Oakland v. Public Employees' Retirement System,
95 Cal. App. 4th 29 (2002)
Coe v. Farmers New World Life Ins. Co.,209 Cal.App.3d 600 (1989)
Comptonv. Aetna Life Insurance and Annuity Company,9s6F.2d256 (tlth Cir. 1992)
County of Los Angeles v. Super. Ct.,102 Cal. App. 4th 627 (2002)....
Crichtonv. Golden Rule Ins. Co.,576F.3d392 (7th Cir. 2009).
Curcini v. County of Alameda,164 Cal. App. 4th 629 (2008)
Davies v. Krasna,14 CaL 3ds02 (1975).....
-111-
.............8
Page(s)
.,,,.16
.....24
........t2
5
18,24
......13
..13,14
17
t9
1l
..14
.15
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
T4
15
16
t7
18
19
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &
^,iff:i:,'l^,
Eastburnv. Reg'l Fire Prot. Auth.,31 Cal. 4thrrTs (2003)
Flint v. Metlife Ins. Co. Connecticut,460 Fed. Appx. 483 (6th Cir. Dec. 12,2AlD
Flint v. Metlife Insurance Company of Connecticut,Case 3:11-cv-00054-JGH, 2011 WL t575364 (W.D. Ky. April 26,2011)
Guzman v, County of Monterey,46 Cal 4th 887 (2009)........
Habitat Trustfor Wildlife, Inc. v. City of Røncho Cucamonga,r75 Cal. App. 4th 1306 (2009)
Hailey v. Cøliþrnia Physicians' Service,158 Cal. App. 4rh 452 (2007).
Jennings v. Prudential Ins. Co.,48 Cal. App. 3d I (1975)........
Johnsonv. State of Califurnia,69 Car.2d782 (1968)
Jonathan Neil & Associates, Inc. v. Jones,33 Cal. 4th917 (2004)
Jones v. GE Life & Assur. Co.,2004 V/L 691749 (M.D.N.C. Mar. 17,2004)
Jordan v. Allstate Ins. Co.,148 Cal. App. 4th 1062 (2007).........
Jozovich v. Central Calif, Bety Growers Ass'n,1 83 Cal.App.2d 216 (1 960)
Lawson v. Superior Court,180 Cal. App. 4th 1372 (2010)
Lovev. Fire Ins. Exch.,221CaI. App.3d 1136 (1990)
Mac D onal d v. C al ifu r nia,230 Cal. App. 3d 319 (1991)
Masters v. San Bernardino County Employees Retirement Assn.,
32 Cal. App. 4th 30 (1995)
McCartyv. State of Cal. Dept. ofTronsp.,164 CaL App. 4th 955 (2008)
-lv-
9
t9
..19
9, 10
18
25
5
............1 1
,..,',23
t7
23
16
t4
..,,,..'....8,23
...........1 1
..14
MEMoRANDUIT¡ OT PONTTS AND AUTHORNNS ISO CEI-PERS DSTCNOANTS' MSJ/À4SA
.,........... l3
1
2
aJ
4
5
6
7
I9
10
11
r2
13
t4
15
l6
t7
18
t9
20
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &
^,lffiÏ lll^*
McClain v. Octagon Plaza, LLC,159 Cal. App. 4th 784 (2008)
Michael J. v. Los Angeles County Dept. of Adoptions,201Cal. App. 3d 859 (1988)
Nøkash v. Superior Court,t96 CaL App. 3d 59 (1987)
Nasrawi v. Buck Consultants LLC,231Cal. App. 4th 328 (2014)
People ex rel. Locþer v. R.J. Reynolds Tobacco Co.,197 CaL App. 4th 516 (2003)
Perry v. East Boy Regional Park Dist.,l4l Cal. App. 4th 1...............
Powerine Oil Co. v. Super. Ct.,37 Cat. 4th 377 (2005) ........
Progressive West Ins. Co. v. Yolo Cnty. Super. Ct.,135 Cal. App. 4th 263 (2005)
RatcliffArchitects v. Vanir Const. Mgmt., Inc.,88 Cal. App.4th 595 at 607 (2001)
In re Ret. Cases,110 Cal. App. 4th 426 (2003) .
Richardsonv. Allstate Ins. Co.,tl7 CaL App. 3d I (1981)
Sqn Mateo Union High Sch. Dist. v. Cnty. of San Mateo,213 Cal. App. 4th 418 (2013), review denied (Apr. 10, 2013)
Selleckv. Globe Int'1, Inc.,166 CaL App. 3d 1123 (198s) ..
Sutherlandv. City of Fort Bragg,86 Cal. App. 4th 13 (2000)...
Taguinodv. l4torld Sav. Banh FSB,755 F. Supp. 2d t064 (C.D. Cal. 2010)
Thao v. Midland Nat'l Life Ins. Co.,2013 U.S. Dist. LEXIS 3386 (E.D. Wis. Jan.9,2013)........
Thomps on v. Community Insurance Co.,2 I 3 F.R.D. 284 (S.D. Ohio 2002)................
-v-
24
15
...r1, 12
20,2r,22
......8
21
24
23
.... I I
..24
II, T2
25
24
10
24
5
MEMoRANDUM OF POINTS AND AUTHORITTES ISO CALPERS DEFENDANTS' MSJA4SA
.19
1
2
3
4
5
6
7
I9
10
11
T2
13
t4
15
r6
T7
18
t9
20
2T
22
23
24
25
26
27
28
DRINKER BIDDLE &
^fi*iÏl:l^-
Tur v. City of Los Angeles,51 Cal. App. 4th 897 (1996)...
l4¡aller v. Truck Ins. Exch.,11 Cal.4th 1 (1995).....
Srarurrs, Rut,ns & RncularloNs
Ann. Gov. Code $ 818.8, p.174 (1982 ed.)..........
Cal. Civ. Proc. Code $ 339(1)....
Cal. Civ. Proc. Code $ 339, subd. (1)
Cal. Civ. Proc. Code $ a37(c)
Cal. Civ. Proc. Code $ a37(cXp)Q).............
Cal Code Civ. Proc $ 337
Cal. Gov. Code $ 810.6........
Cal. Gov. Code $ 818.8..............
Cal. Gov. Code $ 822.2........
Cal. Gov. Code $ 21661(k)..
Cal. Govt. Code $ 815 ...........
Cal. Govt. Code $ 815.2
Cal. Govt. Code $ 815.6
Cal. Govt. Code $ 818.8
Cal. Govt. Code $ 824.2
Cal. Govt. Code $ 822.2
Cal. Govt. Code $ 905
Cal. Govt. Code $ 945 ............
Califomia Insurance Code ..........
California Insurance Code $$ 331 et seq. ..........,
California Tort Claims Act ..............
Government Code Title2, Division 5, pt. 3, Chapter 13...............
-vi-
...15
23
,''.'.,|4
24
I
..........8
23
15
...9
l, 14,15
r,14, 15
.........10
..1,9,14,24
................13
g, 10, 12,14
....14,15,25
1,12,13,14
14, 15
.......15
15
..4,25
25
..9
MEMORANDUM OF POINTS AND AUTHORITMS ISO CALPERS DPTPNOENTS' MSJ/\4SA
10
1
2
J
4
5
6
7
8
9
10
11
12
13
I4
15
16
l7
18
19
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
AIToRNEYs A1 LÁW
Los ANGELE
Insurance Code $ 332 ............
Public Employees' Long Term Care 4c1...........
Tort Claims Act
Under the Govemment Claims 4c1...........
Uniform Commercial Code ç 2-612
OrnenAurIroRITIES
Cal. Const. Article XI, $ 17(a)
Cal. Const. Article XVI, $ 17(a), (c) ..........
California Constitution
California Constitution Article XVI, $ 17 .....
Lee R. Russ & Thomas F. Segalla, Couch on Insurance $ 69:5 (3d ed., West)....'...."
15 Williston on Contracts $ 45:1 ..........
-vll-
25
)A,....t.t...L) t
ô
9
T6
l0
,......... l0
9
.13
....17
......16
MEMORANDUM OF POINTS AND AUTHORITIES ISO CALPERS DEFENDANTS' MSJ/\4SA
1
2
J
4
5
6
7
8
9
10
11
l2
13
t4
15
16
t7
18
l9
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYS A1 LAW
Los ANGELES
I. INTRODUCTION
This class action against CaIPERS and certain current and former members of its Board of
Administration (the "Board Defendants") (collectively the "CaIPERS Defendants") challenges a
premium increase on long term care ("LTC") policies that took effect in 2015 and 2016. At the
outset of this matter in2013, counsel for CaIPERS cautioned Plaintiffs' counsel that the claims in
this case faced insurmountable legal hurdles. CaIPERS and the Board Defendants enjoy broad
statutory immunities for non-contract claims; the contract claims are time-barred because the first
premium increase occurred in 2003 and the continuous accrual rule does not apply to insurance
contracts; and every court in the country that has decided the issue in a published opinion has
found that the industry form of contract CaIPERS used in its LTC program permits premium
increases. As a result, counsel urged Plaintiffs' counsel not to make the large investment of time
and resources necessary to prosecute a class action of this magnitude. Although Plaintiffs'
Corrected First Amended Complaint (the "Complaint") survived demurrer, nothing has changed.
Every claim in the Complaint, whether certified for class treatment or not, fails as a matter of law.
Plaintiffs' certified claim for breach of fiduciary duty is barred by governmental immunity
under the Tort Claims Act, Gov. Code $$ 815 and 820.2 because it is based entirely upon
discretionary management decisions for which CaIPERS is immune as a matter of law. The
uncertified portion of the breach of hduciary duty claim against the CaIPERS Defendants, based
upon a purported failure to provide timely and accurate information, is also barred by
discretionary acts immunity pursuant to Gov. Code $$ 815 and 820.2, and by the separate and
independent immunity under Gov. Code $$ 818.8 and822.2 for misrepresentations by omission.
Plaintiffs' breach of contract claim against CaIPERS both contradicts the language of the
contract and is time barred. The premium increase challenged here is not the first, but actually
the eighth, premium increase that CaIPERS has imposed, and each of the named plaintiffs
accepted each of the prior seven premium increases. The first premium increase went into effect
in June 2003. Because the four year statute of limitations thus expired in June 2007, Plaintiffs
filed this action more than six years too late.
For all of these reasons, and as more fully set forth herein, the CaIPERS Defendants are
-1-MEMORANDUM OF POINTS ¡NO AUTUORTTreS ISO CALPERS DEFENDANTS'MSJA4SA
1
2
IJ
4
5
6
7
8
9
10
11
T2
13
t4
15
16
t7
18
r9
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &
^åi*iÏ ^'a-
entitled to judgment as a matter of law
II. STA OF FACTS
A. Backsround
In accordance with the Public Employees' Long Term Care Act (the "Act") enacted in
Igg5, CaIPERS provides the nation's only self-funded, voluntary, and not-for-profit long term
care ("LTC") program (the "LTC Program"). In 1995, long term care insurance was a relatively
new product. As a result, robust actuarial data was not available to assist insurers in developing
pricing. (F;x.47 at !f 35.) CaIPERS retained a leading LTC actuarial firm, Towers Perrin, and a
leading LTC administrator, Long Term Care Group ("LTCG"), to assist in designing the LTC
Program, developing a premium rate schedule, and administering the LTC Program. (Ex. 1 at
14:19-16:19,26:8-19,2913-18,30:9-20; Exs. 18-20;8x.25 atl57:9-158:3, 158:20-159:4; Ex'
47 ne.)
CaIPERS is a govemment entity, not a for-profit corporation. Accordingly, when it set its
pricing, CaIPERS did not incorporate a profit margin or the cost of commissions for insurance
brokers. (Flx.2 at CaIPERS10921.) In addition, because the LTC Program is not subject to
insurance regulations, CaIPERS enjoyed flexibility in investing the LTC Fund. This provided the
opportunity to invest a larger portion of the LTC Fund in equities, which over the long term of
investment involved in LTC coverage, consistently delivered a higher rate of return than bonds
and represented a better fit as an LTC Fund investment vehicle. (Ex. 47 TT 19-29.)
Like all LTC programs, the premiums for CaIPERS' LTC Program were designed to
remain level, meaning they would not change if the actuarial assumptions turned out to be
accurate. (Ex. 47 T 17.) CaIPERS closely monitored the LTC Program's actual experience in
comparison to the pricing assumptions. Beginning in 1996, CaIPERS commissioned its actuarial
consulting firm to prepare an annual actuarial valuation report that (1) tracked program
experience against the pricing assumptions, (2) made recommendations for adjustments of the
assumptions to conform them to actual program experience, and (3) provided a projection of the
I All references to documents that have been produced in this case and marked with Bates
numbers have been simplified to omit symbols such as "-" and prefatory "000"s.
-2-MEMoRANDUM OF POINTS AND AUTHORITES ISO CALPERS DEFENDANTS, MSJ/MSA
1
2
ôJ
4
5
6
7
8
9
10
11
T2
13
t4
15
t6
t7
18
19
2A
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &
^i"'åiTl:å-
adequacy of the LTC Fund to pay all anticipated future claims. (Ex. 18 at CaIPERS5750-5754;
8x.25 at 159:18-160:9; Exs. 18-20, Ex. 17, Exs. 25-32.)
CaIPERS also retained Coopers & Lybrand to review Towers Perrin's initial pricing
model for the LTC Program and provide an actuarial second opinion (the "Coopers Report").
The Coopers Report conflrmed Towers Perrin's pricing work, calculating a premium that was
within 5.5Yo inthe aggregate of the premium calculated by Towers Perrin-an extraordinarily
small gap given the fact that premium calculations, like actuarial valuations, involve financial
projections 30-40 years into the future and require judgments about matters that are subject to
reasonable disagreement between competent actuarial professionals. (Ex. 47 nn44-46; Ex. 40 at
2,20,21.) Coopers did not recommend that CaIPERS make any changes to the premium
schedule for the LTC Program, nor did Coopers recommend that any changes be made to the
pricing assumptions used by Towers Perrin. (Ex. 47 tf 44; Ex. 40 at 45,item 3.)2
The actuarial assumptions used by CaIPERS, like those used by the rest of the fledgling
LTC insurance industry, did not prove to be accurate. In addition to substantial deviations
relating to policy lapse rates and claims experience, f,tnancial market crashes in2002 and 2008
led to premium increases throughout the LTC industry. (Ex.471lT 30-31.) Many private insurers
exited the LTC business altogether: decreasing from over 100 private LTC carriers in 2002 to
only about a dozentoday. (Id.) Other private insurers went into receivership. (Id.)
To address this industry-wide problem, CaIPERS instituted substantial premium increases
on the Plaintiffs beginning in 2003 (30% increase) and2007 (41.7% increase), and 5Yo thereafter
in 2010, 2011,2012, and20l3, each of which was accepted by the named Plaintifß. (Separate
Statement of Undisputed Material Facts ("UMF") 4.) From 2A02forward, when the first increase
was announced, CaIPERS has consistently explained that it was contractually entitled to raise
' Altho,rgh the Coopers Report expressed the concern that CaIPERS' LTC Fund investment mix,containin{ 62Yo equities, wai different from private insurers who were not permitted to invest
-ot. thaí tOVo ofiheir funds in equities, the only recoÍrmendation it made in this rggjqdjwas. jhatCáfpgnS consult with its investmênt advisors and ctosely monitor the status of the LTC Fund's
i""èri-."t performance, which CaIPER-S_ qid. (Iq. at iteins 5-7.) As it turned out, however, the
ã"tiãórãi"uiy economic êvents since 2002 have'shown that there was no investment¡_trategy thgt
*o"i¿ have ächieved the 5o/o to 80á return rates assumed in the LTC industry in 1995 because the
Uon¿ -*t.tt háve plummeted since 1995, leaving private insurers in the same boat as CaIPERS.
(Cheung Decl. tf 22-23,30-3l.)-3-
MEMORANDIJM OF POINTS AND AUTHORITMS ISO CEIPERS DEFENDANTS' MSJ/}4SA
1
2
J
4
5
6
7
8
9
10
11
T2
13
t4
15
16
t7
18
19
20
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYS AT LAw
Los ANGELES
premiums pursuant to the explicit terms of the LTC policies at issue. (UMF 5.)
As CaIPERS communicated to members at the time, these rate increases were based in
part upon CaIPERS' decision to adjust its economic assumptions in response to the extraordinary
economic events impacting the entire industry. (UMF 6.) For example, the 2003 premium
increase was due, in part, to reducing the assumed rate of return on investment (the "discount
rate") from 8% to 7.5o/o in June 2002 (following the market disruption precipitated by the 9/11
attacks), and to further reducing the discount rate from 7.5o/oto 7Yo inJune 2003. (UMF 7.) The
2007 increase was based, in part, on the Board's decision to build a surplus margin into the LTC
Fund. (UMF 8.) Similarly, the 2010 increase, like the 2015 premium increase, was designed to
create atarget margin, or reserve, of l}Yo at the end of 10 years. (UMF 9')
B. The Parties
CaIPERS is a unit of the Califomia Government Operations Agency. (UMF 1.) It
provides retirement and health benefits to current and retired California public employees. (1d.).
In 1995, the California Legislature enacted the Public Employees' Long Term Care Act
authorizing and directing CaIPERS to provide a voluntary, self-funded, and not-for profit LTC
program to its members. (UMF 2.) CaIPERS, however, is not an insurance company, and its
LTC program is not subject to the California Insurance Code or California Department of
Insurance regulations. (UMF 1.)
Defendants Rob Feckner, George Diehr, Michael Bilbrey, Richard Costigan, JJ Jelincic,
Henry Jones, Priya Mathur, and Bill Slaton are (or were) members of the CaIPERS Board of
Administration. (UMF 3.)
Named plaintiffs Holly Wedding ("V/edding") and Richard and Eileen Lodyga (the
"Lodygas") are individuals who purchased LTC coverage from CaIPERS. (Conected First
Amended Complaint ("FAC") tTT 12-14.) On January 28,2016,the Court certified a class as to
the First Cause of Action for breach of fiduciary duty against CaIPERS (on the duty of care only),
and as to the Second Cause of Action for breach of contract against CaIPERS. (January 28,2016
Order.) The class is defined as "California citizens who purchased LTCl andLTC2 policies from
-4-MEMORANDUM OF POINTS AND AUTHORITMS ISO CALPERS DEFENDANTS, MSJ/},ISA
1
2
aJ
4
5
6
7
8
9
10
11
r2
13
t4
15
16
t7
18
I9
20
2l
22
23
24
25
26
27
28
DRINKER BTDDLE &
^'i"t"ìii "t"tl^-
CaIPERS who were subjected to the 2012 rate inøease adopted by CaIPERS in Octob er 2012,"3
(rd.)
C. The Contract
Upon acceptance of their applications for enrollment in the LTC Program, members were
sent a Schedule of Benefits setting forth the details of their coverage elections, as well as a
document entitled "Evidence of Coverage" ("EOC"), which together comprised the written
contract between the parties. (uMF 13.) The Schedule of Benefits stated the insured's issue age
(the age of the insured at the time of the initial issuance of the coverage), premium, plan
selection, coverage limits, and other coverage features. (UMF 14.)
The first page of the EOC prominently informed insureds that CaIPERS could raise
premiums on a class-wide basis, and that insureds had a 30-day right to cancel:
Your 30-Day Right To Cancel
You may cancel Your coverage for any reason within 30 days afterYou recêive this Evidence of Coverage. To do so, mail or deliver theEvidence of Coverage to Our Administrative Office at the address onpage 3. We will refund any premium You have paid. The coveragewill then be treated as if it were never issued.
You Coverage is Guaranteed Renewable
We cannot cancel or refuse to renew Your coverage rurtil benefitshave been exhausted as long as You pay premiums on time. Yourpremiums will never increase due solely to a change in Your ag9 oILealth. CaIPERS can, however, change Your pre4riums, but only ifWe change the premium schedule on an issue-age" basis for allsimilar coveragè issued in Your state on the same form as thiscoverage....
(UMF 15) (emphases in original). Latet in the EOC, in the section titled "Premium
Payment Provisions" the EOC states under the bold text heading, "Can Premium Rates Ever
Change?":
3 This is the same rate increase which was announced in 2013, and not scheduled to take effect until2015, discussed in Section II.D, below.o 'olssu" age" is the age at which the policyholder purchas.-d g9y9lug9. Thao v. Midland Nat'lLife Ins. Cõ.,Z}tt U.5. Dist. LEXIS ::S0-p.O._Wi-s. Jqn, 9,2013). See als.o.Carl v. State,2009N"C3C LEXÍS 36 (N.C. Super. Ct.2009) ("The Prudential group rates at original issue age, or the
age of enrollment in the Medamerica gfoup policy, were,on ay^ery.9:30%highet than the
lie¿emerica group rates."); Jenningsi. Prudential Ins. Co.,48 Cal. App. 3d 8, 14-15 (1975).
-5-MEMORANDUM OF POINTS AND AUTHORITNS ISO CALPERS DEFENDANTS, MSJ/À4SA
1
2
aJ
4
5
6
7
8
9
10
11
12
t3
t4
15
16
T7
18
T9
20
2l
22
23
24
25
26
27
28
DRINKER BÍDDLE &REATH LLP
ATToRNEYS AT LAW
Los ANGBLEsMEMORANDUM OF POINTS AND AUTHORITIES ISO CALPERS DEFENDANTS' MSJIN4SA
The premium rates shown ín the Schedule of BeneJïts møy bechanged on the anniversary of Your Coverage Effective Date and onany premium due date thereafter. Any changes made will be on arlissuê age basis for all similar coverage issued in Your state on thesame form as this coverage and made by action of the PERS Boardof Administration, øccording to the críteria they establßh'
(UMF 16) (emphases added).
Further reinforcing that CaIPERS could increase premiums, the EOC expressly provides a
mechanism for policyholders to mitigate the impact of any such premium increase by decreasing
coverage:
What Are Your Options if Premium Rates Change?
If premium rates are increased on a class basis, You will have theoott:"
îuirrtul.irrg your current benefits at the increased premiumrate; or
electing a decrease in coverage to a coverage amount Wcoffer that maintains or reduces Your current premium. Theprocedure for decreasing coverage is described in the sectionon Coverage Provisions on page 26.
Written Notice of Premium/Automatic Election
We will give You written notice of any proposed change in-lgurpremiumlates at least 60 days in advance.of such change. _UnlessYou notify Us within 28 days after receiving Our notice, You will beconsidereô to have elected to maintain Your current benefit amountat the increased Premium rate.
({JMF 17.)5
In accordance with these provisions, CaIPERS has never singled out any member for a rate
increase. (UMF 20.) Rather, CaIPERS implemented each of the premium increases on a class-
wide basis, applying the increase equally to all members of the same issue age with the same
coverage, just as the EOC permits. (/d.) Rate increases were applied to policies with inflation
protection as well as those without inflation protection. (UMF 21.) CaIPERS also provided
members with the option to reduce their coverageto avoid each increase. (UMF 22.)
5 Some policyholders opted to purchase a more -expensive qt.ry wi.tþ built-in "inflationptotãóiioä,;'ríeaning tha:t the benefits thatp-olicyho-lder would be eligible to receive wouldãuto*uti"álly increa"se by 5% on an annuaibasis without an-y go-rresPg-nding premium increase.
aÚMF f S.) Éor those poiicyholders, the EOC further provided that "Your benefits will increase
;¿h y*r'Yorrt rorr"táge is"in force'to help keep pace-with inflation. . . . Your premiums willneveiincrease as a result of these benefit increases." (uMF 19.)
-6-
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
14
15
T6
t7
18
t9
20
21
22
^^¿5
24
25
26
27
28
DRINKER BIDDLE &
^å"'*:T:ll^,
D. The Rate Increases at in This Litisation
In early 2013, CaIPERS advised policyholders of a further rate increase of 85% spread out
over two years, beginning in 2015. (UMF 10.) This increase was implemented for the same
reasons as the seven prior increases starting in 2003, as CaIPERS explained:
We knowthat you are counting on CaIPERS' Long Term CareProgram to help support you in the future and we are committed tomaintaining the financial solvency of the program. Therefore,similar to the private long term care industrY, we have implementedseveral actions needed to sustain the LTC Program that include:refining the investment mix of the CaIPERS LTC Fund, adjusting theLTC Piogram's expected return on investments, and implementing aseries of premium increases.
(uMF 1 1.)
Ca1PERS also advised its members that it would offer new coverage options permitting
them to avoid the increase altogether, while still maintaining adequate coverage. (Ex. 13.) One
option, for example, \Mas to convert from lifetime coverage to 1O-year coverage, while retaining
the inflated beneflrt amount which had grown over the years through the operation of built-in
inflation protection.u (la.)
E. Plaintiffs' Claims Aeainst the CaIPERS Defendants
Plaintiffs filed this action on August 6,2013. (UMF 12.) The claims that have been
certified for class treatment in Plaintiffs' First Amended Complaint are (1) that CaIPERS
breached its fiduciary duty by "grossly underpricefing] premiums, failfing] to properly fix
premiums based on the 5% inflation protection benefit option, and engagfing] in an improper and
reckless aggressive 44Yo învestment strategy," and (2) that CaIPERS has breached the terms of
the EOC by subjecting Plaintiffs to the 85% premium increase announced in 2013. The
uncertified claim for breach of fiduciary duty is based upon the CaIPERS Defendants allegedly
failing to provide "timely and accurate information" to Plaintiffs. The remaining uncertified
6 This lQ-year option was designed to substantially, if not completely, eliminate any.harm tothose wisliing to convert their þolicy to avoid the increase. Jhe ?Ie9åe_alngunt of time someone
requires long"term care servicei is j.¿ years, and less than lYo of CaIPERS LTC participants have
reciuired ben"efits longer than 10 years. (Ex, {8 I4,-F*.$.) Thus,.for 99o/o of the putative clas.s
nt"'-b"tr, converting-to a l0-year plan riould actually place them in a better position by.reducing
their monthly premiüm and cóntinüing to provide tþém all the-long term care coverage.they.willever need. (t,i.¡ m" same thing may-weli be true for those who elected to convert their policies
to a 3- or 6-year plan. _ 7 _
MEMORANDUM OF POINTS ANO AUTHORITßS ISO CALPERS DEFENDANTS' MSJ/}4SA
1
2
âJ
4
5
6
7
8
9
10
11
T2
l3
t4
15
t6
l7
18
t9
20
21
22
23
24
25
26
27
28
DRINKER BIDÐLE &REATH LLP
AlTORNEYs AT LAW
Los ANCELffMEMORANDUM OF POINTS AND AUTHORITIES ISO CALPERS DEFENDANTS, MSJ/}4SA
claims are for breach of the implied covenant of good faith and fair dealing (untethered to any
provision of the contract, which permits premium increases and is silent as to investment
strategy), rescission (which is not a cause of action, and is barred in any event by govemmental
immunity for fraud), and declaratory relief (which adds nothing to the failed substantive claims
upon which it is based). While the CaIPERS Defendants vigorously deny all the factual bases for
the underlying allegations, none of them state a viable cause of action as a matter of law even if
such facts are accepted as true.
III. ARGUMENT
A. Legal Standard
A motion for summary judgment must be granted when the Court determines that there is
no triable issue as to any material fact and that the moving party is entitled to judgment as a
matter of law. Cal. Civ. Proc. Code $ a37(c). The moving party bears the initial burden of
production to make a prima facie showing of the nonexistence of any triable issue of material
fact, atwhich point the burden shifts to the opposing party to show that a triable fact issue does
exist. Aguilar v. Atlantic Richfietd Co.,25 Cal. 4th 826, 850 (2001). A defendant may meet its
burden with respect to each cause of action by showing that there is a complete defense to that
cause of action, or that ons or more elements of that cause of action cannot be established. Cal.
Civ. Proc. Code $ a37@)(p)(2).
The undisputed facts demonstrate that each of Plaintiffs' claims against the CaIPERS
Defendants fails as a matter of law because the CaIPERS Defendants have a complete defense in
the language of the contract, the statute of limitations and/or governmental immunity. See Love v.
Fire Ins. Exch.,221 Cal. App. 3d 1136, ll42-43 (1990) ("Where the operative facts are
undisputed, the question of the application of the statute of limitations is a matter of law, and
summary judgment is proper where the facts show the action is time barred as a matter of law.")
(internal citations omitted); Perry v. East Bay Regional Park Dist., t4l Cal. App. 4thl' 14
(affirming summary judgment granted to public entity on "complete defense" of tort immunity).
-8-
I
2
J
4
5
6
7
8
9
10
11
t2
t3
t4
15
T6
T7
18
t9
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYS AT LAW
Los ANGELES
B Be for
m Suit.
1. CaIPERS is Immune from Suit for Discretionary Acts.
Plaintiffs' first cause of action for breach of fiduciary duty seeks to hold the CaIPERS
Defendants liable for discretionary pricing and investing decisions. Specifically, Plaintiffs allege
that the CaIPERS Defendants owed Plaintiffs a fiduciary duty and breached that duty by allegedly
underpricing premiums, failing to properly fix premiums based on the 5% inflation protection
option, and engaging in an "improper and reckless [slc] aggressive 44o/o investment strategy'"
(FAC tT 9S.) In the uncertified portion of their claim, Plaintiffs further allege that the CaIPERS
Defendants failed to provide "timely and accurate information" about the LTC Program
(discussed in Section III.B.3 below). (FAC n97')
It is well established, however, that public entities like CaIPERS are immune from tort
liability unless a statute specifically provides otherwise. Cal. Govt. Code $ 815; Eastburn v.
Reg'l Fire Prot. Auth.,31 Cal. 4thll75,1179 (2003) ("The California Tort Claims Act provides
that '[a] public entity is not liable for an injury,' 'fe]xcept as otherwise provided by statute.' As
that language indicates, the intent of the Tort Claims Act is to confine potential governmental
liability, not expand ít."); Guzman v. County of Monterey, 46 Cal. 4th 887 , 897 (2009) ("Under
the Government Claims Act, there is no common law tort liability for public entities in California;
instead, such liability must be based on statute'").
Here, Plaintiffs' claim for breach of fiduciary duty against CaIPERS is expressly premised
on Government Code section 815.6, which strips a public entity of its presumed immunity in the
case of an injury proximately caused by its breach of a mandatory duty imposed by an
"enactment'-i.s,, ooa constitutional provision, statute, charter provision, ordinance or regulation."
FAC T 92 (citingCal. Gov. Code $ 815.6); Cal. Gov. Code $ 810.6. According to Plaintiffs, the
enactment that provides the source of CaIPERS' allegedly 'omandatory" ñduciary duties to
Plaintiffs is purportedly the California Constitution, (FAC 1T93), which provides as follows:
The retirement board of a public pension or retirement system shall
have the sole and exclusiveJíduciary responsíbílíty over the øssets
of thepublícpensíon or retírementsystem.. . . The members ofthe
-9 -
MEMORANDUM OF POINTS AND AUTHORITTES ISO CALPERS DPTSNOENTS,MSJ/}4SA
1
2
aJ
4
5
6
7
8
9
10
11
I2
13
t4
15
16
t7
18
1,9
20
2T
22
23
24
25
26
27
28
DRINKER BIDDLE &
^t"iTäli,i^.
retirement board of a public pension or retirement system shalldischarge their duties wìth respect to the system with the care, skill,prudence, and diligence under the circumstances then prevailing thata prudent person acting in a like capacity and familiar with thesematters would use in the conduct of an enterprise of a like characterand with like aims.
Cal. Const. art. XVI, $ 17(a), (c) (emphases added).
By its plain language, however, Section 17 applies exclusively to the management of
pension or retirement system assets. Cal. Const. art. XI, $ 17(a) ("The retirement board of a
public pension or retirement system shall have the sole and exclusive f,rduciary responsibíIity over
the assets of the public pension or retirement system.") (emphasis added). The LTC Program is
not a public pension or retirement system. In fact, the LTC program was not even in existence
when section 17 was enacted or amended, but later established by Government Code TitIe2,
Division 5, Part 3, Chapter 13 in 1995. (UMF 2.) Significantly, CaIPERS LTC plans "shall not
become part of, or subject to, the retirement or health benefits programs administered by"
CaIPERS. Cal. Gov. Code $ 21661(k). Therefore, Section 17 does not impose a fiduciary duty
with respect to operation of the LTC Program (or to any other program aside from a public
pension or retirement system).
But even if section 17 did apply to CaIPERS' management of the LTC Program,
Plaintiffs' charccteúzation of the fiduciary duties prescribed by section 17 as "mandatory," as
opposed to discretionary, is erroneous. A duty imposed by an enactment is mandatory only where
itis "obligatory, rather than merely discretionary or permissive, in its directions to the public
entity; it must require, rather than merely authorize or permit, that a particular action be taken or
not taken." Guzman,46 Cal. 4th at 898 (emphasis in original). "It ìs not enough, moreover tltst
the public entíty or officer høve been under an oblígøtíon to perþrm afunctíon if thefunction
itself ínvolves the exercíse of dìscretÍon." Id. (emphasis added). Rather, "[i]f significant
discretion is required to carry out any duty imposed, that duty is not mandatory within the
meaning of section 815.6 and thus a breach of the duty will not support tort liability." Sutherlqnd
v. City of Fort Bragg,86 Cal. App. 4th 13,20 (2000).
Under this framework, a duty is discretionary, as opposed to mandatory, if it involves the
-10-MEMORANDUM OF POINTS AND AUTHONITMS ISO CEI-PERS DEFENDANTS' MSJA4SA
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
1,4
15
I6
17
18
19
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &
^t"ïTHi"l-
exercise ofjudgment or choice. Johnsonv. State of California,6g CaL2d782,788 (1968) ('[A]
discretionary act is one which requires 'personal deliberation, decision and judgment'"). For
example, the Court of Appeal recently held that investment decisions such as those at issue here
"bear the hallmarks of discretionary activity which should not be the subject of scrutiny and
second-guessing by a coordinate branch of governmeît." San Mateo Union High Sch. Dist. v.
Cnty. of San Mateo ("San Mateo"),213 Cal. App. 4th418,429 (2013),review denied (Apr' 10,
2013). As the court explained in San Mateo: "The basic compulsory obligation imposed on the
county treasurer . . . to act as a prudent investor, while stated in mandatory language, is quite
general. . . . The manner in which the required standard of the prudent investor is to be attained
entails the exercise of extensive discretion that is not in the least specified by the statutes or any
accompanying implementing measures. Left to the expertise and judgment of the county
treasurer are a myriad of investment evaluations, appraisals and choices that are the very essence
of discretion." Id. at430.
Likewise, although Section 17 also uses the word "shall," the basic obligation imposed on
CaIPERS by this provision is to act prudently when investing monies and in administering the
system, which are inherently discretionary acts. See County of Los Angeles v. Super. Ct.,l02 CaI.
App. 4th 627,637 (2002) (statutes containing the word "shall" did not impose mandatory duty on
county because they involved discretionary acts); In re ReL Cases,l 10 Cal. App. 4th 426, 471
(2003) (noting that "retirement boards have discretion to manage their retirement systems. ' ' .")'
Indeed, like the provisions in San Mateo, Section 17 does not command or prescribe any specific
acts designed to achieve compliance with this aspirational standard, such as specific premium
rates or investment vehicles. See San Mateo,2I3 Cal. App. 4th at432 (citing MacDonaldv'
California,230 Cal. App. 3d 319, 330 (1991) (aplaintiff "cannot create a mandatory duty from
such a general statement of legislative policy.")). Rather, it necessarily leaves to the judgment of
CaIPERS investment decisions "that are the very essence of discretioî." See San Mateo,2l3 CaL
App. 4th at 430. These same features have led the Court of Appeal to the broad conclusion in yet
another, even more rgcent, case that the "various fiduciary duties" imposed by Section 17 arc all
oonecessarily" discretionary in nature, and therefore subject to governmental immunity' Nasrø,tti
- 11-
MEMORANDUM OF POTNTS AND AUTHORITIES ISO CATPERS DEFENDANTS' MSJ/À4SA
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
t4
15
t6
t7
18
t9
20
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &
^,T*iT^tll^-
v. BuckConsultants LLC,231Cal. App. 4th328,342-43 (2014) (affirming demurrer as to breach
of fiduciary duty claim on immunity grounds because "[g]iven the breadth" of the flrduciary duties
it imposes, "section 17 necessctrþ vests the fretirement system'sJ board with discretion ín tlte
munner in whích ítfuffills those duties.') (emphasis added)'
In tight of Nasrawl, it is doubtful that Plaintiffs could hold CaIPERS or its Board liable
for any breach of fiduciary duty imposed by Section 17, at all. But because Plaintiffs' claim
specifically challenges the prudence of pricing and investment decisions, there can be no question
that such decisions fall squarely within the realm of discretionary acts for which CaIPERS is
immune under Government Code section 815.6, and cannot form the basis for any liability as a
matter of law. See San Mateo,2l3 Cal. App. 4th af 432 (dismissing breach of fiduciary duty
claim on immunity grounds where claim "demand[ed] inquiry into highly subjective and
speculative investment decisions").
2. The Individual Board Defendants Are AIso Immune.
Plaintiffs' claim for breach of fiduciary duty also seeks to hold the individual Board
Defendants liable for monetary damages for the Board's discretionary pricing and investment
decisions. Like CaIPERS, however, the Board Defendants also have immunity for these
discretionary acts. Cal. Govt. Code $ 820.2 ("Except as otherwise provided by statute, a public
employee is not liable for an injury resulting from his act or omission where the act or omission
was the result of the exercise of discretion vested in him, whether or not such discretion be
abused."); (UMF 2). As interpreted by the California Supreme Court, section 820.2 "erects a
separate 'barrier' or 'hurdle' of immunity as a point 'beyond' the 'threshold issue' of legal duty."
Caldwelt v. Montoya, 10 Cal. 4th972,986 (1995). Thus, "public employees are immune for their
discretionary acts, even those which constitute breaches of actionable duty, unless a statute
otherwise provides." Id. (emphasis in original).
Although the Board Defendants' discretionary acts immunity originates from a different
statutory provision than CaIPERS' immunity, the immunity analysis on Plaintiffs' breach of
fiduciary duty claim is the same as set forth in Section III.B.l, above. Indeed, as with Plaintiffs'
breach of fiduciary duty claim against CaIPERS, the very same pricing and investment decisions
-t2-MEMoRANDUM OF POINTS AND AUTHORITNS ISO CALPERS DEFENDANTS' MSJ/À4SA
1
2
J
4
5
6
7
8
9
10
l1
12
13
t4
15
t6
t7
l8
T9
20
2t
22
23
24
25
26
27
28
DRINKÊR BIÐDLE &REATH LLP
AllORNEYS AT LAW
Los ANGELES
at issue in Plaintiffs' claim against the Board defendants are discretionary in nature. Accordingly,
the Board Defendants are immune from suit pursuant to Government Code section 820.2 and the
well settled principles set forth above.T
The CaIPERS Defendants Also Cannot Be Liable on the Uncertified Claim forBreach of the Purported Ðuty to Provide Timely and Accurate Information.
In the uncertified portion of Plaintiffs' First Cause of Action for breach of f,rduciary duty,
Plaintiffs allege that the CaIPERS Defendants breached their purported duty to provide timely and
accurate information about the financial stability of the LTC fund. (FAC T 97.) However,
nothing in the language of Article XVI, section 17 of the Califomia Constitution-or any other
enactment-imposes any such duty on CaIPERS or the Board Defendants to provide information
to Plaintiffs about pricing or the financial stability of the LTC Fund. There is thus no mandatory
duty upon which to base this claim for the reasons discussed above, and it fails as a matter of law.
In Chaidez v. Board of Administrotion of California Public Employees' Retirement
System,223 Cal. App. 4th 858, 862 (2014),the California Court of Appeal held that language in a
prior appellate decision stating that "PERS has a fiduciary duty to provide timely and accurate
information to its members" is limited to a narrow situation, not present here, involving the
retroactive reclassification of local employees. ^S¿e
id. (cítingthe holding in City of Oakland v.
Public Employees' Retirement System,95 Cal. App. 4th 29 (2002), and narrowing its application).
And in any event, the court explained that the language in City of Oakland pertaining to any
fiduciary duties owed by CaIPERS should "be read to mean that the Constitution imposes on
PERS a duty to 'ensure the rights of members and retirees to their full, eamed benefits,"'a
proposition that (even if correct) is irrelevant to Plaintiffs' claims).
Finally, even if its holding were not so limited, Plaintiffs cannot rely on the court's
7 The immunity of the Board Defendants to Plaintifß' claim for breach of fiduciaryduty flrtherimmunizes CaIPERS to the extent Plaintiffs might otherwise assert their breach of fiduciary dutyclaim against CaIPERS on a vicarious liability theory. Govemment Code section.815.2 providesin peftiñent part: 'oExcept as otherwise provided by statute, a public.entity is not liable for an
injirry resulting from an ac|. or omission of an employee of the public enlity where the employeeis immune from liability." Thus, if a public employee has discretionary immunity, the emplgyeris also immune, which is the case heré. See McCarty v. State of Cal. Dept. of Transp.,164 Ca,l.
App. 4th 955,979 (2008) ("[T]he public entity 9ann91 be derivatively liable under the respondeatsuperior theory if the relevant public employee had discretionary immunity.").
-13-
3
MEMORANDUM OF POTNTS AND AUTHORITMS ISO CALPERS DEFENDANTS' MSJ/\4SA
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
t4
15
16
t7
18
19
20
21'
22
23
24
25
26
27
28
DRINKER BIDÐLE &REATH LLP
ATTORNEYs A1 LAW
Los ANGELESMÊMORANDUM OF POINTS AND AUTHORITIES ISO CALPERS DEFENDANTS, MSJA4SA
decision in City of Oakland to impose a mandatory duty on CaIPERS and its Board pursuant to
Government Code $ 815.6 because that statute only applies if the mandatory duty is contained in
an enactment. (See FAC, u 4 (citing City of Oaklandto allege that "CaIPERS and the CaIPERS
Board of Administration Members have a fiduciary duty to provide timely and accurate
information to its members.").) The term "enactment" "is limited to 'a constitutional provision,
statute, charter provision, ordinance or regulatiort,"' Lawson v. Superior Court,180 Cal. App' 4th
1372,1395 (2010), and does not include court opinions.
In any event, in addition to the discretionary acts immunity pursuant to Gov. Code $$ 815
and820.2,the CaIPERS Defendants have a separate and independent immunity under Gov. Code
$ $ 8 1 S . 8 and, 822.2 since this claim is in the nature of misrepresentation by omission. The
gravamen of this aspect of Plaintiffs' breach of fiduciary duty claim is an alleged concealment of
information about the financial stability of the LTC fund and pricing decisions. (See, e.g.,FAC
fl 53 (alleging that "[a]t all times, Defendants knew the LTC policies were grossly underpriced and
that the premiums would have to be raised"), 11 66 (alleging that "CaIPERS had knowledge that
premiums for the LTC policies would be increased to unaffordable and unexpected levels."),n73
(alleging that CaIPERS failed to disclose "that its LTC policies were underpriced and improperly
invested"), !J77 (same), T 81 (same)). Thus, Plaintiffs' breach of fiduciary duty claim rests on
alleged concealmenf. See, Crichtonv. Golden Rule Ins. Co.,576F.3d392,397 (7rhCir.2009).
As a result, the claim is barred by sections 818.8 and822.2of the California Government
Code. Under section 818.8, public entities have"flbsolute immuníly ftomliability for negligent or
intentional misrepresentation." Cal. Law Revision Com., Comment, Deerings Ann. Gov. Code
$ 818.8, p.174 (1982 ed.) (emphasis added); Masters v. San Bernardino County Employees
Retirement Assn.,32 Cal. App. 4th 30,43 (1995) ("[T]he immunity of apublic entity for
misrepresentation by its employee, whether intentional or negligent, is absolute."). Likewise,
section }2z.zprovides thatapublic employee is not liable for injury caused by his
misrepresentation or concealment "unless he is guitty of actual fraud, comrption or actual malice"
(which is not alleged in the FAC). Cal. Govt. Code $ 822.2. The purpose of sections 818.8 and
g22.2is to immunize public entities and their employees from liability for misrepresentation or
-14-
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
t4
15
t6
17
18
t9
20
2I
22
23
24
25
26
27
28
DRINKER BTDDLE &REATH LLP
ATToRNEYS AT LAw
Los ANcELES
deceit, including matters involving financial interests, regardless of the label applied to the cause of
action. Tur v. City of Los Angeles,5l Cal. App. 4th 897,902-903 (1996). Thus, the immunity
granted by these sections extends to "all types of fraud and deceit cases ìncluding frøudulent
concealment." Michqel J. v. Los Angeles County Dept. of Adoptions,2}l Cal. App. 3d 859, 867
(1 988) (emphasis added).
Because CaIPERS is a unit of the California Government Operations Agency (UMF 1)
and thus absoluteiy immune from liability for alleged concealments (even where cloaked as
purported breaches of fiduciary duty) under Government Code section 818.8, and the Board
Defendants are likewise immune under section 822.2, Plaintiffs' breach of fiduciary duty claim
should be dismissed for this separate and independent reason. See, e.g., Curcini v. County of
Alameda,164 Cal. App. 4th 629,649 (2008) (affrrming that claim against County of Alameda
and its employees was barred by sections 818.8 and822.2 where claim was predicated on
allegation that defendants concealed their hidden intent not to evaluate bids fairly).
In sum, no part of Plaintiffs' First Cause of Action survives summary judgment.
C. J Plaintiffs' Secondthat
1. Plaintiffs' breach of contract claim is barred as a matter of law by theapplicable statute of limitations.
California imposes a four-year limitations period to bring a claim for breach of contract,
which runs from the date of actionable breach.s Cal. Code Civ. Proc. $ 337. That is, the
limitations period begins to run from the first instance that the plaintiff suffers actual and
appreciable harm, however uncertain in amount. Davies v. Krosna, 14 Cal.3d 502, 514 (1975).
Plaintiffs assert that CaIPERS has breached the terms of the EOC by increasing their
premiums. (FAC fl 109.) Yet, as the named Plaintiffs admit, CaIPERS previously raised the
premiums on their LTC coverage by 30%in2003,by 41.7%2AA7,by 5% in 2010, by 5%in
8 To the extent Plaintiffs seek money damages from CaIPERS, the limitations period is, at most,only two years from the date of breaôh. Cal. Govt. Code $ 905,945 (contract claims þ1ot1Sþtagainst púUtic entities must be presented to that entity within one year of accrual and filed sixrnonthsãfter notice of rejection, or within two years of accrual absent notice of rejection).- Forpurposes of this motion, however, Plaintiffs' contract claim is time-barred under even the longerlour-year limitations period prescribed by Civil Code Section337.
_15-
eItIs
MsvoRANoUM OF POINTS ENO AUTHONITÍES ISO CALPERS DEFENDANTS' MSJi}4SA
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
T4
15
16
t7
18
T9
20
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &
^,li*ii l,'l^-
201I,by 5% in2012 and by 5Yo in2013. (UMF 4.) Thus, there is no question that the alleged
breach and resulting harm occurred first, if at all, in 2003. Because Plaintiffs' claims for breach
of the EOC therefore accrued more than four years prior to the filing of this action on August 6,
20l3,they are long since time-barred.
To circumvent this problem, Plaintiffs have attempted to argue that each successive
premium increase triggered a new limitations period. (Class Cert. Reply at l4-L5; Surreply at 7.)
However, it is well established that the theory of "continuous accrual" advocated by Plaintiffs
applies only to successive breaches of a divisible contract, which the EOC, as a matter of law, is
not. See Armstrong Petroleum Corp. v, Tri-Valley Oil & Gas Co., 1 16 Cal. App. 4th 1375,1388-
8e (2004).
Contrary to Plaintiffs' suggestion, "[t]hat a contract provides for periodic performance
does not mean it is divisible. It depends on whether the parties were bargaining for a single
performance over time or several separate performances." Jozovichv. Central Calif. Bemy
Growers Ass'n,183 Cal.App.2d216,222-24 (1960). Thus, the hallmark of a divisible contract-
entirely absent from the EOC-is the periodic mutual exchange of performance, such that each
party's performance in a single period serves as complete consideration for the other party's
performance during that period. 15 Wiltiston on Contracts $ 45: 1 . As a corollary, "a breach of a
divisible part of the divisible contract, while releasing the nonbreaching parfy from the duty to
render a return performance as to that divisible part, will not necessarily excuse or discharge that
party from remaining duties under the contract." Id. Classic examples of a divisible contract
therefore include installment contracts as defined by Uniform Commercial Code section 2-612, or
contracts for a monthly utility service such as gas or electric.
Unlike these examples, the policyholder's periodic payment of premiums under the EOC
is not exchanged for CaIPERS' repeated performance on a this-for-that, monthly basis; rather,
each premium payment (which is invested and gtows over time) is merely partial consideration
for CaIPERS' singular obligation to provide coverage, i.e.,to pay the policyholder's covered
costs of long term care whenever he or she becomes eligible, regardless of the number of previous
premium payments that have been made. Moreover, and also unlike an installment or utility
-t6-MEMORANDUU OT POTruß ENN AUTHORITIES ISO CATPERS DEFENDANTS, MSJ/MSA
1
2
J
4
5
6
7
I9
10
11
12
13
T4
15
16
I7
18
19
20
2t
22
z5
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYS AT LAW
Los ANGELES
contract, the policyholder's uncured failure to pay a scheduled premium not only causes them to
lose coverage for that period, but causes the entire policy to lapse, even if the policyholder has
paid into it for years. Thus, as with insurance policies, generally, the EOC is an indivisible
contract to which the theory of continuous accrual simply has no application. See, e.g., Coe v'
Fsrmers New 't4/orld Life Ins. Co.,209 Cal.App.3d 600, 606 (1989) ("[T]he great weight of
authority holds that acontract of insurance is a single, indivisible agreement of the company for
the agreed period of time..."); Lee R. Russ & Thomas F. Segalla, Couch on Insurance $ 69:5 (3d
ed., West) ("As a general rule, a contract of insurance for a term of years is regarded as an entire
contract for that term, even though the premiums are paid in annual installments."); Jones v. GE
Life & Assur. Co.,2004 WL 6917 49 at * 3 (M.D.N.C. Mar. 17 ,2004) ("[L]ife insurance contracts
are contracts for life, or for the term specified in the policy, in consideration of periodic
payments. Each payment is not consideration for the period in which it is paid, but is part
consideration for the entire contract.").
In the altemative, Plaintiffs have recently posited (in stark contrast to the allegations in
their FAC) that the first actionable breach (at least as to policyholders without inflation
protection) did not occur uúil20l2,when they allege (without any factual support) that CaIPERS
first elected to raise their premiums for reasons relating to the LTC Fund's investment experience,
as opposed to purely "issue age claims experience." (Cert. Mot. at t2.)e the twin premises
underpinning this argument{l) that the EOC permits CaIPERS to raise its members' premiums
for reasons relating to "issue age claims experience" but for no other reasons, and (2) that the pre-
2012 premium increases were implemented only for the former-are indisputably false, and
cannot save Plaintifß from summary judgment.
First, the EOC nowhere prohibits CaIPERS from raising premiums for economic reasons
relating to the LTC Fund's investment experience, or otherwise limits calPERS' ability to raise
premiums to reasons relating only to ooissue age claims experience." Leaving aside the propriety
of Plaintiffs' interpretation of the o'issue age" language of the EOC, Plaintiffs' argument devolves
e Specifically, Plaintiffs' new tbgory is that.the 2015 premium rate increase was the result ofCalËERS' deóísion ín2012 to add a reserve into its pricing model and lower its investment
discount rate, which the EOC supposedly prohibits. (/d')-17 -
MEN4ORANDUM OF POINTS ENO AUTHORITES ISO CALPERS DEFENDANTS' MSJ/I\4SA
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
14
15
16
17
18
I9
20
2t
22
^^¿J
24
25
26
27
28
DRINKER BIDDLE &
^å"'*iilll^"
into the proposition that-whatever this language means-CaIPERS may not increase premiums
due to adverse investment retum experience or a change in the reserye policy. However, the EOC
unambiguously provides that premium rates can be increased on a class-wide basis with the
proper notice "by action of the CaIPERS Board of Administration, accordíng to the criteria they
establislt." (UMF 16) (emphasis added). As more fully discussed in Section IILC.2, below,
Plaintiffs' attempt to read additional, contradictory terms into the EOC must be rejected.
In any event, there can be no dispute that previous premium increases were, in fact, based
in part upon investment return, a reduction of the discount rate, and changes to the reserve
policy-a fact fully disclosed to Plaintiffs in the letters and newsletters notiffing them of the
same. (UMF 4-9.) Plaíntffi have even ødmitted us much in their bríeiing to this Court' See
Class Cert. Mot. at 11:13-15 ("As a direct result of stock market fluctuations, the value of the
LTC Fund has varied widely from year to year and resulted in rate increases in 2003, 2007, and
2010. The rate increases were, for the most part, not based on 'issue age' experience."). Thus, as
Plaintiffs cannot now deny, the economic reasons for the premium increase at issue were, in fact,
no different than those for the prior premium increases, including those as early as 2003 and
2007 . (UMF 11.) As a result, even under Plaintiffs' latest theory, their contract claim is time
barred.
Plaintiffs' claim for breach of contract also fails on the merits because thepolicy unambiguously permits CaIPERS to raise premiums.
In addition to and independent of being time-barred, Plaintiffs' Second Cause of Action
for breach of contract also fails on the merits. It is a fundamental tenet of contract law that "[i[f
the defendants were given the right to do what they did by the express provisions of the contract
there can be no breach." See, e.g., Carma Developers (Cal.), Inc. v. Marathon Development Cql',
Inc.,2 CaL 4th342,375 (lgg2). Where, as here, the conduct claimed to be a breach of contract is
expressly authorized by the parties' agreement in writing-the interpretation of which presents a
pure question of law-the claim is appropriately disposed of on summary judgment. See Habitat
Trustfor Witdlife, Inc. v. City of Rancho Cucamonga,175 CaL App. 4th 1306, l34I-42 Q009)
(,,It is solely a judicial function to interpret a written contract unless the interpretation tums upon
-18-
2.
MEMORANDUM OF POTNTS AND AUTHORITES ISO CALPERS DEFENDANTS' MSJ/I\4SA
I
2
aJ
4
5
6
7
8
9
10
11
12
13
t4
15
t6
t7
18
19
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &
^,iff:i:,'l^-
the credibility of extrinsic evidence, even when conflicting inferences may be drawn from the
uncontroverted evidence. ").
Every court that has applied this well established principle to premium increases for long-
term care coverage has held that an LTC provider does not breach a contract with the covered
individual by raising premiums in accordance with the contract's terms. See Flint v, Metlife
Insurance Company of Connecticut, Case 3:11-cv-00054-JGH, 2011 V/L 7575364, at *2 (V/.D.
Ky. April 26,2011) ("no breach of contract claim can be stated based on the premium rate
increase. The Policy explicitly authorizes Metlife to raise premium rates on a class-wide basis.
Metlife has not breached any contractual duty by raising premium rates on a class basis in
accordance with DOI regulations ."); Compton v. Aetna Life Insurønce ønd Annuity Company,956
F.2d256,25S (1lth Cir. 1992) (dismissing breach of contract claim where the policy permitted
the insurer to make premium rate changes effective on any premium due date); Flint v. Metlife
Ins. Co. Connecticut,460 Fed. Appx. 483 (6th Cir. Dec. 12,2011) ("Flint cannot state a claim
that Metlife breached its contract with him by seeking the rate increase, because the policy
explicitly provided for premium rate increases."); Thompson v. Community Insurance Co.,2l3
F.R.D. 284,300 (S.D. Ohio 2002) (granting summary judgment on contract claim because
,oAnthem could, pursuant to the terms of the Ohio Certificate, institute new premiums. It clearly
could do so, as long as the requisite notice was given'").
In the FAC, Plaintiffs assert that CaIPERS has breached the terms of the EOC by
increasing their premiums. (FAC 11 109.) However, in no less than three places, the EOC
expressly permits CaIPERS to raise premiums, as long it does so on a class-wide, issue-age basis,
and with at least 60 days of written notice:
o "Your premiums will never increase due solely to a change in Your age or health.
CaIPERS can, however, change Your premiums, but only if We change the
premium schedule on an issue-age basis for all similar coverage issued in Your
state on the same form as this coverage. V/e must give You at least 60 days
written notice before We change Your premiums." (UMF 15)'
r ooThe premium rates shown in the Schedule of Benefits may be changed on the
-19_
MEMORANDUM OF POINTS AND AUTHORITIES ISO CATPERS DEFENDANTS, MSJ/À4SA
1
2
aJ
4
5
6
7
8
9
10
11
12
13
t4
15
t6
t7
18
l9
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &REATH LLP
ATToRNEYS AT LAW
Los ANGELESMEMORANDUM OF POINTS AND AUTHORITIES ISO CEI-PERS DEFPNDANTS' MSJA4SA
anniversary of Your Coverage Effective Date and on any premium due date
thereafter. Any changes made will be on an issue age basis for all similar
coverage issued in Your state on the same form as this coverage, and made by
action of the CaIPERS Board of Administration, according to criteria they
establish." (UMF 16).
o "If premium rates are increased on a class basis, You will have the option of
maintaining Your current benefits at the increased premium rate; or electing a
decrease in coverage. . . . We will give You written notice of any proposed change
in Your premium rates at least 60 days in advance of such change." (UMF 17).
It is undisputed that CaIPERS has never singled out any member for a rate increase based
on their age, health, or any other reason. (UMF 20.) Plaintiffs also admit that rate increases were
applied to their policies, and their own documents show that they received timely notice. (uMF
19,4.) Accordingly, Piaintiffs cannot establish that CaIPERS has implemented the premium
increases in any manner other than as explicitly and prominently authorized throughout the EOC.
Recognizing this fundamental problem, Plaintiffs have recently put forth the competing
theory that while the EOC admitedly does permit CaIPERS to raise premiums, it can supposedly
do so only 'ofor reasons relating to issue age claims experience ." See Class Cert. Mot. at 12-13.
This new theory, too, is appropriately disposed of on summary judgment because, Plaintiffs'
sleight of hand notwithstanding, the language actually used in the EOC is not reasonably
susceptible to this interpretation. See People ex rel. Locþer v. R.J. Reynolds Tobqcco Co',197
Cal. App. 4th 516,524 (2003) ("Locþer") ("When a dispute arises over the meaning of contract
language, the first question to be decided is whether the language is 'reasonably susceptible' to
the interpretation urged by the party. If it is not, the case is over."). Not only are the words
"claims experience" and'oinvestment experience" entirely absent from all three provisions
authorizing CaIPERS to raise premiums, but the EOC nowhere imposes or even suggests any
limitations at all on the reasons for which premium increases may be implemented. To the
contrary, the EOC expressly states that apremium increase may be implemented accordingto øny
críterìøestablished by the Board. (UMF 16) (emphasis added). As a matter of law, Plaintiffs'
-20 -
1
2
J
4
5
6
7
8
9
10
1i
t2
13
14
15
16
t7
18
19
20
2l
22
23
24
25
26
27
28
DR¡NKER BIDDLE &REATH LLP
ATToRNEYS A1 LÀW
Los ANGELES
attempt to read additional, substantially limiting terms into the EOC that are not only wholly
absent, but directly contrary to the existing terms of the EOC, must be rejected. Powerine Oil Co.
v. Super. Ct.,37 CaL4th377,392,401 (2005) ("[W]e do not rewrite any provision of any
contract. . . for any purpose," and "we will not rewrite the policies to insert a provision that was
omitted."); Locþer,107 Cal. App. 4th at 525 ("Generally speaking, the rules of interpretation of
written contracts are for the purpose of ascertaining the meaning of the words usedtherein.")
(emphasis in original).
Another, equally unavailing theory advanced by Plaintiffs is that, with respect to owners
of plans with inflation protection, CaIPERS has purportedly breached the following language in
the EOC that describes the inflation protection option: "Yow premium will not increase as a
result of these annual benefit increases." However, Plaintifß misconstrue this language.
CaIPERS offered two options for addressing the rising costs of long term care due to inflation:
the inflation protection option; and the "benefit increase option." (F;x.42 at Wedding33'34.)
With inflation protection, the amount available to pay benefits rises each year by 5% without any
increase in premium. (Id.) The premium is higher for the inflation protection option because the
5o/o aw¡u¡al benefit increases are built-in to the premium calculation. (Id.) With the benefit
increase option, the policy holder is given the opportunity to increase benefits every three years,
as desired, in exchange for payment of a higher premium. (1d.) The quoted language above
accurately describes the built-in inflation protection option, as distinguished from the benefit
increase option. Consistent with this language, CaIPERS increased benefits by 5% each year
without imposing a correlating premium increase for those holding policies with built-in inflation
protection. (UMF 23.)
Plaintiffs' contention that CaIPERS has breached the quoted language cannot be
reconciled with the other provisions of the EOC. By its plain terms, the EOC only prohibits a
premium increase to inflation protection policyholders if the inflation protection feature, ìn and
of itself, is the reason for the increase. (UMF 19) ("Your premium will not increase as a result of
these annual benefit increases."). Ptaintifß do not and cannot allege that CaIPERS failed to build
the cost of the 5Yo atnual increases into the premium for inflation protection policies. Moreover,
-21 -
MEMoRANDUM OF POINTS AND AUTHORITMS ISO CALPERS DEFENDANTS' MSJ/À,TSA
I
2
aJ
4
5
6
7
I9
10
11
12
13
T4
15
t6
t7
18
t9
20
2t
22
23
24
25
26
27
28
DRINKER BIDDLE &
^t#åïl-
Plaintiffs admit, as they must, that LTC policyholders with and without the inflation benefit
protection option were both subject to the 85% premium increases at issue. (UMF 21), Thus, this
increase was not imposed "as a result of'having inflation protection coverage within the plain
meaning of the EOC.
Nevertheless, Plaintiffs posit that CaIPERS has breached this provision of the EOC
because one of the reasons premium increases were needed to stabilizethe LTC fund was,
purportedly, the increased cost to provide benefits to class members receiving inflation protection
benefits. (FAC I 106-107.) However, even if the costs of providing inflation protection to some
policyholders has contributed in some part to the overall costs of the program, that still would not
mean that any particular policyholder's premiums were raised "as a result of'the annual5o/o
benefit increases within any reasonable reading of the EOC. Adopting this view would mean that
CaIPERS could never raise premiums on inflation protection policyholders, for any reason-
effectively eliminating the multiple provisions permitting CaIPERS to raise premiums on even
inflation protection plans on a class-wide basis. (UMF 15-17.) Because Plaintiffs' interpretation
of the inflation protection provisions cannot be reconciled with the other provisions in the EOC or
even with Piaintiffs' own allegations, it, too, must be rejected, and Plaintiffs' contractual claims
dismissed. See Reynolds , 107 Cal. App. 4th at 526 ("The whole of a contract is to be taken
together, so as to give effect to every part, if reasonably practicable, each clause helping to
interpret the other.").
D. Third C
Plaintiffs uncertified Third Cause of Action asserts that CaIPERS has breached the
following duties purportedly arising from the implied covenant of good faith and fair dealing, as
well as the "special relationship" inherent to all insurance contracts: (1) to o'reasonably" exercise
its discretion to raise premiums, (2) to conduct an appropriate actuarial analysis, (3) to properly
invest funds; (4) to continue enrollments; and (5) to provide timely and accurate information.
(FAC T 114.) Each of these grounds fails as a matter of law.
As a threshold matter, none of the conduct alleged by Plaintiffs can give rise to a claim for
-22-
of the
MEMoRANDUM OF POINTS AND AUTHORITIES ISO CALPERS DEFENDANTS' MSJ/\4SA
1
2
IJ
4
5
6
7
8
9
10
11
12
13
t4
15
t6
I7
18
I9
20
21'
22
^â¿)
24
25
26
27
28
DRINKER BIÐDLE &
^,li*iÏ:lI^-
breach of the implied covenant of good faith and fair dealing because they are not yet entitled to,
and have not been denied, payment of any benefits under their policies. In the realm of insurance
contracts, it is well-settled that "a bad faith claim cannot be maintained unless policy benefits are
due" and have been delayed or withheld un¡easonably. Love v. Fire Ins. Exch.,22l CaL App. 3d
1136, 1148, 1153 (1990); see also Progressive West Ins. Co. v. Yolo Cnty. Super. Ct.,135 Cal.
App. 4th 263,279 (2005) ("The essence of the tort of the implied covenant of good faith and fair
dealing is focused on the prompt payment of benefits due under the insurance policy; there is no
cause of action for breach of the implied covenant of good faith and fair dealing when no benehts
are due."); Jonathan Neit & Associates, Inc. v. Jones,33 Cal. 4th917,923,940-41 (2004)
(holding plaintiff could not state a claim against insurer for breach of implied covenant where
plaintiff alleged insurer "knowingly charged it a substantially higher premium than was actually
owed").
Here, it cannot be disputed that none of the Plaintifß have sought, or been denied,
payment of the benefits actually contemplated by their policies and relevant to the analysis
supptied by Love and its companion cases-that is, compensation for their covered long term care
costs. Because Plaintiffs do not even allege that they are currently entitled to long term care
benefits and that such benefits have been unreasonably delayed or denied, their claim for breach
of the duty of good faith and fair dealing cannot go forward. See id.; Waller v. Truck Ins. Exch.,
1 1 Cal. 4th I,35 (1995) (claim for breach of the duty of good faith and fair dealing o'cannot be
maintained unless policy benefits are due under the contract); Jordan v. Allstate Ins. Co.,148 Cal.
App. 4th 1062,1078 (2007) (an insurer's o'bad faith" claims handling practices or failure to
investigate "is not separately actionable if there is no coverage" due)'
Alternatively, even if the law permitted a bad faith claim based solely on conduct not
involving non-payment of benefits, such a claim would necessarily be time-barred' Where, as
here, the claimant seeks tort remedies for breach of the duty of good faith and fair dealing
attendant to an insurance contract, the claim sounds in tort, and the two-year statute of limitations
set forth in Code of Civil Procedure section 339(1) applies. See Love,22l Cal. App. 3d at lI44
n.4 (,,To the extent the Loves seek tort remedies on their claim for breach of the covenant of good
-23 -
MEMORANDUM OF POINTS AND AUTHORITES ISO CATPERS DEPPNOENTS' MSJ/IVÍSA
1
2
âJ
4
5
6
7
I9
10
11
T2
13
t4
15
t6
T7
18
19
20
2I
22
^â¿J
24
25
26
27
28
DRINKER BIÞDLE &REATH LLP
ATToRNEYS AT LÀW
Los ANGELEsMEMORANDUM OF POINTS AND AUTHORITIES ISO CALPERS DEFENDANTS' MSJ/\4SA
faith and fair dealing, the claim is govemed under and is barred by the two-year statute of
limitations under Code of Civil Procedure section 339, subd. (1).") (citing Richardsonv. Allstate
Ins. Co.,ll7 CaL App. 3d 8, 13 (1981)). Critically, all of CaIPERS' post-contractual conduct
alleged to have breached the implied covenant took place, as a matter of public record, more than
two years before Plaintiffs' frled this action in August 2013. As discussed above, CaIPERS began
raising Plaintiffs' premiums as early as 2003, and had by 2011 already more than doubled
Plaintiffs' original premiums. (UMF 4). Similarly, the Board's decision to place a temporary
moratorium on new enrollments was made, on the public record, in 2008. (UMF 24.) Thus,
Plaintiffs' claim is time-barred under the applicable two-year statute of limitations.
The breach of implied covenant claim also fails because it is well established that "[i[f the
defendants were given the right to do what they did by the express provisions of the contract there
can be no breach." See, e.g., Carma Developers (Cal.), Inc. v. Marathon Development Cø1., Inc.,
2 CaL.4th342,375 (1992). This rule applies with equal force to claims for breach of the implied
covenant. Id. at 37 4 ; McCløin v. Octagon Plazs, LLC, 159 Cal. App. 4th 784,805 (2008).
Because CaIPERS was entitled to increase premiums for all the reasons stated in Section IILC.2
above, Plaintiffs' claim for breach of the imptied covenant fails for this additional reason as well.
Finally, to the extent Plaintiffs have framed the claim as a tort, it is also baned by
CaIPERS' general governmental immunity to tort claims. See Govt. Code $ 815.
E. Should B rF for
Summary judgment should also be granted on Plaintiffs' Fourth Cause of Action for
rescission for several reasons. First, under Califomia law, rescission is a remedy rather than a cause
of action. See Naksshv. Superior Court,196 Cal. App. 3d 59,70 (1987) ("Rescission is not a cause
of action; it is a remedy"); Taguinod v. World Sav. Bank, FSB,755 F. Supp. 2d 1064,1072 (C.D.
Cal. 2010) (dismissing claim for rescission because "[r]escission is a remedy, not a cause of
action."). For this reason alone, Plaintiffs' purported claim for rescission (Count tV) should be
,dismissed as surplusage. See Award Metals, Inc. v. Superior Court,228 CaL App. 3d 1128 (1991);
Selleckv. Globe Int'1, Inc.,166 Cal. App. 3d 1123,1136 (1985).
-24 -
I
2
âJ
4
5
6
7
I9
10
11
12
13
T4
15
t6
t7
18
19
20
2l
22
23
24
25
26
27
28
DRINKER BIDDLE &
^.T*:i::l^-
F
Moreover, because the gravamen of Plaintiffs' request for the remedy of rescission is that
CaIPERS concealed the alleged "true facts" from Plaintiffs regarding the stability of the LTC fund
and CaIPERS' investment strategies, (FAC nn I24,127),lhe rescission claim sounds in tort. As a
result, it is barred by the absolute immunity provided by section 818.8 of the California
Govemment Code.
Plaintifß' purported claim for rescission also fails to the extent that it is predicated on the
California Insurance Code. Because CaIPERS is not an insurance company, (uMF 25),the sections
of the Califomia Insurance Code on which Plaintiffs predicate their claim (Califomia Insura¡rce
Code sections 331 et seq.) do not apply. Cf. Hailey v. Caliþrnia Physicians' Service, 158 Cal'
App. 4th 452,469-470 (2007) (frnding that an Insurance Code section332 claim against Blue
Shield was not cognrzable because Blue Shield is not an insurance company).
on use of
Plaintiffs' last purported cause of action for declaratory and injunctive relief (Count V) fails
because, as explained above, Plaintiffs have not (and cannot) state an underlying claim for relief
against Ca|PERS. See, e.g., RatcliffArchitects v. Vanir Const. Mgmt., Inc.,88 Cal. App. 4th595 at
607 (2001) (claim for declaratory relief action fails as a matter of law where other causes of action
are subject to dismissal).
IV. CONCLUSION
For all of the foregoing reasons, the undisputed, material facts establish that each of the
claims asserted against CaIPERS and the Board Defendants in this action fail as a matter of law.
Accordingly, CaIPERS and the Board Defendants respectfully request that their motion for
summary judgment, or, in the alternative, Summary adjudication, be granted.
Dated: March 10,2017 LLP
By
Adam J. ThurstonErin E. lvlcCrackenAlexis N. Burgess
Attomeys for the CaIPERS Defendants25-
MEMORANDUM OF POINTS ENN AUTSORITES ISO CATPERS DEFENDANTS, MSJIN4SA