Judge Hacks City Pension Case

Friday, Dec. 15, 2006 | City Attorney Mike Aguirre’s hallmark pension lawsuit, which seeks to roll back a decade’s worth of employee benefits, came to an abrupt halt Thursday when a judge ruled that legal obstacles prevent the majority of the case from moving forward.

Superior Court Judge Jeffrey Barton’s ruling on the pension trial’s opening phase prevents Aguirre from pursuing the big-bucks savings he has promised since he filed the litigation in July 2005. Estimated to be worth about $900 million by a pension expert just weeks ago, the stakes now appear to be immaterial.

Employee groups, led by union attorneys, convinced the judge to cut the case short, successfully arguing that past legal settlements prevent the court from even considering the bulk of the city attorney’s request – even if he could prove that the pension deals he is challenging were illegal.

Despite the setback he was dealt Thursday, Aguirre vowed to press forward with his legal challenge, saying he will appeal Barton’s decision to a higher court and – even if the appeal is unsuccessful – that he will chase the few remaining dollars that remain after the ruling.

“I respect Judge Barton, I respect the process, but I tell you that his ruling is a mistake,” he said.

City Hall was relatively silent about the development, with only Council President Scott Peters commenting. Peters said that he thought the city should abandon the legal challenge and focus on fixing its finances outside the courtroom.

“We have indulged this without any expectation, and now we need to get back to real work,” said Peters, who has been skeptical of the lawsuit from its start. “This litigation has become something of a sideshow. Now, he’s had his day in court and he lost.”

Mayor Jerry Sanders’ spokesman said the mayor wanted to digest the ruling before commenting, and the remaining seven council members did not return calls seeking comment.

By setting aside the allegedly illegal benefits, Aguirre said the city could significantly cut down its current $1.4 billion pension deficit. He claimed a legal attack on those benefits was the only way to fix the city’s stark financial condition besides filing for municipal bankruptcy, a contention that the city attorney reaffirmed Thursday.

“Eventually we will get to the point of ruination” if the case is dropped, Aguirre said.

His critics have disagreed, arguing that the city has incurred great expense in outside lawyers and in resources within the city attorney’s internal budget to see the case get this far.

Peters said that he anticipates that the City Council will decide whether to carry on at an upcoming meeting, but Aguirre said he will begin working on an appeal right away.

Thursday’s comments from both officials foreshadow the next chapter in an ongoing tussle between Aguirre and the council about who makes the legal decisions for the city. Aguirre has maintained that his office directs all of the city’s legal affairs, while Peters and other council members argue that legal matters are a matter of policy that should be decided and directed by the council.

“There will be no shutting us down,” Aguirre said.

If Aguirre brings an appeal that doesn’t succeed at the state Court of Appeal, the value of his lawsuit will be much less than the amount city-hired actuary Joseph Esuchanko estimated in November.

The benefits included in the 1996 and 2002 deals that Aguirre was challenging amounted to about $900 million, Esuchanko testified, but he said he had not yet calculated the present value after Barton’s ruling.

Opinions were mixed about what was still at stake in the case. Aguirre conceded that the remaining benefits were “immaterial,” but said he would pursue them anyway.

Michael Conger, a plaintiffs attorney who was involved in some of the legal settlements that tripped up Aguirre’s case, estimated that about $36 million worth of benefits were left on the table. He said he interpreted the judge’s ruling to allow Aguirre to challenge only the 2002 benefits increases to active employees and those who retired after July 2004.

David Strauss, the lawyer representing several non-union workers in the case, said that he thought that only pensioners who retired between July 2004 and July 2005 would be at risk of losing pension enhancements given to employees in 2002. He did not offer an estimate for the value of the benefits that are still at stake.

Thursday’s judgment was designed to rule on several legal questions that the employees opposing Aguirre wanted answered before the merits of the case – whether the deals violated the state’s conflict-of-interest law – were handled in later phases.

Publicly, Aguirre had a simple story to tell: Municipal employees who served on the city’s retirement board won themselves new pension benefits in exchange for allowing the city to skirt paying what it owed the retirement trust fund in 1996 and 2002.

Aguirre has told that tale to anyone within earshot over the past two years, a tactic that has won the city attorney admirers in the community who saw him as a watchdog for the taxpayers, but alienated the city government’s workers, elected officials and others who found his rhetoric acerbic and his efforts wasteful.

But the judge decided to first answer five legal questions before allowing the case to proceed to a trial on Aguirre’s conflict-of-interest argument:

Barton ruled that the city of San Diego cannot claim that the San Diego City Employees’ Retirement System – which is not a government – violated a state and city laws that prohibits public agencies from creating long-term debt without a public vote.

The unions argued that only the government itself could violate the law, and that the city could not sue itself. Aguirre insisted that the government’s contractors – in this case, the retirement system – were supposed to be mindful of the law.

The court found that the 2000 court settlement that resulted in the increases in pension benefits, known as Corbett, obstructs Aguirre from challenging the benefits that were part of the 1996 agreement.

The employees claim Corbett reaffirmed all of the benefit levels that were created before the 2000 settlement. Further, the workers said that every labor deal between the city and its unions that came after the improvements were granted cemented the levels of retirement benefits.

Aguirre said at a Thursday press conference that that settlement was invalid because it was created by the same parties who engaged in the allegedly illicit deals. In order to reaffirm an agreement that was initially struck out of a conflict of interest, the deal should be subject to a revote without the officials who had the conflict being present, he argued.

The court also ruled that all of the pensioners whose benefits are at stake should be individually represented in the case.

Thousands of police officers, city lawyers, elected officials, workers who aren’t affiliated with a union and retirees could have their pensions trimmed if the case succeeds, despite not having direct legal representation in Aguirre’s case. They would have to be notified if the case moved forward.

A 2004 legal settlement, known as Gleason, bars the city from arguing that retirement board members had a conflict-of-interest in the making of the 1996 and 2002 pension deals.

Employees said the city missed its opportunity to argue that point when the Gleason settlement – which involved similar charges – was finalized.

Aguirre said Gleason only dealt with aspects of the 1996 and 2002 deals that allowed the city to shortchange the retirement fund, not the creation of new benefits, which is the thrust of his lawsuit.

The judge decided that Aguirre could challenge the remaining set of benefits, despite the employees’ argument that they were untouchable under the law.

The case is set for a Dec. 27 hearing on the second phase of the trial, which deals with whether a statute of limitations prevents Aguirre from proceeding, but Aguirre said he plans to appear before Barton next week to discuss his appeal.

Please contact Evan McLaughlin directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

Leave a comment