Tuesday, July 11, 2006 | The judge overseeing the city of San Diego’s landmark pension-benefits challenge found the case too complex and unique to issue the summary judgment sought by City Attorney Mike Aguirre. In a ruling released Monday, Judge Jeffrey Barton said a number of factual disputes remain to be resolved in a full jury trial expected this fall.
Barton said conflicting evidence exists regarding the city attorney’s primary legal argument: that pension board members violated the state’s conflict-of-interest law. Likewise, the judge said a full jury must also decide whether the pension-benefit boosts given to city employees in 1996 and 2002 were part of one interwoven contract or a number of disparate deals, as argued by attorneys for the pension system and employee unions.
In asking Barton to make a summary judgment, Aguirre attempted to circumvent a lengthy jury trial on the hopes that the judge would rule the 1996 and 2002 pension deals illegal and void because of the alleged taint of conflict of interest. It was a long shot from the start, as Barton noted during oral arguments last month that such a finding would be extraordinary considering the depth of documentary evidence.
Barton would have had to be convinced that there were no outstanding conflicts of fact in order to grant Aguirre’s motion.
“This is a significant burden for the City given this procedural setting and these unique and complex facts and circumstances,” he wrote.
The ruling means that the case, central to the city of San Diego’s financial crunch, appears headed to a traditional jury trial in October.
“I really don’t think it’s much of a surprise” given the factual hurdles that needed to be cleared, said plaintiffs’ attorney Michael Conger. He has repeatedly sued the pension system over the deals in recent years, but is not involved in this case.
Remarks on both sides of the dispute were muted. Neither side declared wholesale victory or defeat.
Aguirre said he was disappointed that the judge didn’t see the dispute in the clear-cut way that he viewed it, but said he expected the conflict to drag through the courts for years.
“We will be engrossed in litigation for a long time to undo the damage that’s been done to this city,” Aguirre said.
Michael Leone, an attorney for the pension system, said he was pleased with the ruling. “It’s what I expected,” he said.
The case centers on pension deals crafted in 1996 and 2002 in which the city offered employees beefed-up benefits. At the same time, the pension board, populated largely by city employees, allowed the city to annually underfund its pension system.
Aguirre contends that the benefit boosts were used to lure pension board members into approving the underfunding deals – a violation, he argues, of Government Code 1090, the state’s conflict-of-interest statute.
Any contract tainted by the existence of a 1090 violation is illegal and void, he contends. The city attorney estimates that by voiding the benefit boosts given to employees in the two deals, he can halve the city’s $1.4 billion pension deficit.
In his ruling, Barton essentially agreed with neither Aguirre nor the opposing lawyers. Instead, he said the conflicts in the arguments presented by both sides deserve to be vetted by a jury.
“There is a material conflict in the evidence concerning the relationship between conduct that allegedly violates section 1090 and the benefit increases,” Barton wrote.
The District Attorney’s Office has filed criminal 1090 charges against six former pension trustees related to the 2002 deal in a case that is also likely headed for trial this fall.
In the current case, attorneys for the San Diego City Employees’ Retirement System and employee unions also argue that the 1996 and 2002 deals to not constitute simple single “agreements” that would make them susceptible to being rescinded under the 1090 law.
Again, Barton also said a determination on the issue must be made by a jury.
“This is not a simple case where the Court can examine one or two fully integrated contractual agreements to determine the meaning of the contract and the intention of the parties,” Barton wrote.
The judge noted that the timing of the 2002 deal calls into question Aguirre’s assertion that the benefit deal and the underfunding deal were directly linked, as the City Council approved the benefit boosts nearly a month before the pension system voted to allow the city to continue its historical underfunding of the fund.
Barton also noted that the 2004 Gleason settlement – the resolution of a lawsuit brought by a group of pensioners – wiped away the underfunding pieces of the 1996 and 2002 agreements, but didn’t touch the benefits. Because the benefits were not addressed in this agreement, he said it raises unanswered questions as to whether the deals were linked.
Council President Scott Peters said he hoped the ruling would indicate the chances Aguirre’s legal arguments have in succeeding. He described the opinion as being “reticent.”
“There were a lot of things he could have cleaned up as legal matters that he had in front of him, but he backed away from them,” Peters said. “That didn’t help anybody.”
The council president said a more definitive ruling could have provided the city with a clearer picture about the future of the litigation. Peters has disputed Aguirre’s claim that $700 million could be knocked off the pension deficit, saying that it is closer to only $40 million. The city, he said, needs to know if the stakes are high enough to justify the lawsuit’s expense, which Peters estimates will rise dramatically if the case heads to trial.
Like Peters, Aguirre said he was hoping that the judge would provide more direction in the sprawling lawsuit.
“The parties needed to have a more definitive or persuasive position than what was given here,” Aguirre said.
Aguirre said the judge was too caught up in the technicalities of certain laws; the ruling should have focused on the actions of the SDCERS trustees who allegedly benefited off the pension enhancements, he said.
“The whole point of the case law was that the court isn’t concerned about the technicalities of contract law,” Aguirre said. “The court is concerned with the conduct of public officials.”
Some had thought a strong ruling from Barton on the summary judgment could force employee unions to renegotiate the current contracts over the fear that they could lose them all in a jury trial. It was unclear if Monday’s ruling provided that prod, or if union leaders would ever oblige to such discussions absent a jury’s ruling.
Aguirre said he will decide Tuesday morning whether he will request that the Fourth District Court of Appeals review Barton’s ruling to deny the motion. If he does, he will file the request within 20 days and thereby avoid dealing with other hurdles that he could face before getting to trial.
One of those hurdles is a pending motion that Peters filed to disqualify Aguirre from the case. Peters argues that the City Attorney’s Office is conflicted because the office – under Aguirre’s predecessor – negotiated, prepared and approved the legislation that orders the city to pay the benefits. The council president also argues that Aguirre cannot argue on behalf of the city because he was never authorized by the City Council, and he has taken positions that are opposite his client by asking for city officials’ depositions.
Employee unions and a group of pensioners have also filed a motion for summary judgment in the case in the hopes of having the judge uphold the benefits before reaching trial. However, such a motion will also face the same burdens of proof as Aguirre’s attempts.
In his ruling, the judge also appeared to kill Aguirre’s attempt to have the deals voided because they allegedly violate local and state laws forbidding municipalities from going into debt without a vote of the people. The judge determined that such a ruling would require the pension system to be considered part of the city, and in that case, the city would be suing itself. The court, he said, is set up to handle disputes between parties.
The 1996 and 2002 pension deals have left a massive impact on the city. They are blamed largely for a pension deficit that threatens to consume annual city budgets for years to come. A number of state and federal probes have been launched into city politics and finances as a result of the deals and their fallout.
In addition to the district attorney’s criminal case, the U.S. attorney has brought corruption charges against five former pension officials over the 2002 deal. The Securities and Exchange Commission is investigating possible securities fraud for city officials’ failure to accurately portray the depth of the pension deficit and other potential liabilities.
As a result, the city has been locked out of public finance markets for nearly two years as it struggles to regain its fiscal credibility.
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