Case 2:12-cv-03087-MWF-SP Document 35 Filed 11/26/12 Page 1 of 5 Page ID #:787 PRESENT: HONORABLE MICHAEL W. FITZGERALD, U.S. DISTRICT JUDGE Rita Sanchez Courtroom Deputy ATTORNEYS PRESENT FOR PLAINTIFFS: Court Reporter ATTORNEYS PRESENT FOR DEFENDANTS: PROCEEDINGS (IN CHAMBERS): ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS MOTION TO DISMISS [28], AND DISMISSING ACTION WITHOUT PREJUDICE This matter is before the Court on the Motion to Dismiss Second Amended Complaint for Failure to State a Claim Upon Which Relief Can Be Granted (the Motion ) filed by Defendants Victorville Water District ( VWD ) and City of Victorville (the City, and collectively Victorville ). (Docket No. 28). The Court has read and considered the papers filed on this Motion and held a hearing on November 26, 2012. On September 19, 2012, the Court granted with leave to amend Victorville s motion to dismiss the First Amended Complaint ( FAC ) filed by Plaintiffs Amy Lyn De Zwart and five other former employees (collectively, the Former Employees ) of the Victor Valley Water District ( VVWD ). ( September 19 Order (Docket No. 24)). The Former Employees filed their Second Amended Complaint ( SAC ) on October 1, 2012. (Docket Nos. 25-27). The Former Employees again seek a declaration pursuant to the Declaratory Judgment Act ( DJA ), 28 U.S.C. 2201, that the refusal to continue certain purported health benefits violates the Contracts Clause of both the United States Constitution, U.S. Const. Art. I, 10, and the California Constitution, Cal. Const. Art. I, 9, as well CIVIL MINUTES GENERAL 1
Case 2:12-cv-03087-MWF-SP Document 35 Filed 11/26/12 Page 2 of 5 Page ID #:788 as a mandatory duty under California Government Code 815.6. (See September 19 Order at 2). As stated in the September 19 Order (at 3), the Former Employees FAC was dismissed for a simple reason: The allegations of the FAC d[id] not make clear either (1) the alleged contractual basis for the Former Employees continued benefits, or (2) what constitutes the alleged breach or impairment of this contractual relationship. Now, in opposition to this Motion, the Former Employees have clarified the alleged contractual basis: the plain language of binding public entity Resolutions, the circumstances surrounding the enactment of those Resolutions, and defendants subsequent conduct. (Opp. at 4; see September 19 Order at 3 (noting a number of municipal resolutions, all of which touch on the subject benefits, including but not limited to the following: City Resolution No. 05-71; VVWD Resolution B- 812-07; and San Bernardino County Local Agency Formation Commission ( LAFCO ) Resolution 2959, as well as the Conditions and Transition Plan referenced therein (citations omitted)). Therefore, according to one of the three paradigms proposed by the Court in the September 19 Order (at 3), the SAC alleges that the resolutions discussed above created a contractual right to benefits that later was disturbed by some governmental act. Assuming that the SAC adequately alleges a contractual relationship in this respect, in order to state a claim for violation of the Contracts Clause, the SAC also must allege that a change in law impairs that contractual relationship and that the impairment is substantial. General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S. Ct. 1105, 117 L. Ed. 2d 328 (1992); (see September 19 Order at 2). According to the Ninth Circuit, the second component of the substantial impairment test turns on whether the State has used its law-making powers not merely to breach its contractual obligations, but to create a defense to the breach that prevents the recovery of damages. Univ. of Haw. Prof l Assembly v. CIVIL MINUTES GENERAL 2
Case 2:12-cv-03087-MWF-SP Document 35 Filed 11/26/12 Page 3 of 5 Page ID #:789 Cayetano, 183 F.3d 1096, 1102 (9th Cir. 1999). The question should be whether the modification that the legislation imposes simply breaches the contract like any other unilateral attempt to modify an agreement, or whether the statute prevents or materially limits the [plaintiff] s ability to enforce his contractual rights. Id. at 1103 (citation omitted). For example, legislation impairs a public contract only if it prevents or materially limits the remedies that would be available if the contract were between private parties. Id. (citation omitted). In this case, the Former Employees have not adequately alleged any such change in law. Illustratively, the SAC alleges the following: that VWD breached its contractual obligations to provide such benefits (SAC 22 (emphasis added)); that VWD announced that it would not continue reimbursing retirees of VVWD for out-of-state medical insurance (id.); and that Victorville arbitrarily placed annuitants on health insurance plans that were inferior in coverage and deductible terms (SAC 23). First, the SAC does not allege that any of these purported impairments were enacted by statute or any other legislative action. Second, even assuming such legislative action, the SAC still does not allege that these purported impairments were anything other than simple breaches of the Former Employees alleged contractual rights. Nor do the Former Employees argue that these purported impairments limit their contractual remedies. Accordingly, the Motion (Docket No. 28) is GRANTED without leave to amend as to the Former Employees DJA claim to the extent based on the U.S. Contracts Clause. As stated in the September 19 Order (at 5), the Court will not provide the Former Employees with limitless opportunities to state a claim. If the SAC or a claim therein is dismissed, it will be without leave to amend. Furthermore, the Court notes that the parties agree that the analysis under both the U.S. and California Contracts Clauses is the same. See Campanelli v. Allstate Life Ins. Co., 322 F.3d 1086, 1097 (9th Cir. 2003) ( The California Supreme Court uses the federal Contract Clause analysis for determining whether a statute violates the parallel provision of the California Constitution. ); (September CIVIL MINUTES GENERAL 3
Case 2:12-cv-03087-MWF-SP Document 35 Filed 11/26/12 Page 4 of 5 Page ID #:790 19 Order at 2). Nevertheless, the Court here makes no finding as to whether the SAC states a claim for violation of the California Contracts Clause. As noted above, the Former Employees now are arguing essentially a breach of contract claim i.e., the relevant Resolutions constitute a binding contract, and Victorville has breached the contractual obligations created by those Resolutions. In turn, Victorville essentially argues as a matter of fact that it has not breached these obligations, to the extent the Resolutions even can be construed as contracts. (See Reply at 4 ( Nowhere, however, does VVWD Resolution B-812-07 or LAFCO Resolution No. 2959 ever say that Defendants have to pay more than this amount as a premium for Plaintiffs health insurance, much less that the City of any other public entity must appropriate an ever increasing amount of money to pay for Plaintiffs health care benefits. ). Victorville makes a similar argument with respect to the Former Employees claim as based on Government Code 815.6. According to Victorville, neither Resolution impose[s] the mandatory duty on Defendants urged by Plaintiffs. (Reply at 9). But this argument is both inappropriate and incomplete. Even if the Court were inclined to grant Victorville s Request for Judicial Notice (Docket No. 29) and find again, as a matter of fact that the Resolutions only require Victorville to pay premiums of $658.28 per month (see Reply at 10), Victorville still has made no argument with respect to the alleged contractual obligation (or mandatory duty ) to provide out-of-state medical insurance, as discussed above. Accordingly, the Motion is DENIED as to the Former Employees DJA claim to the extent based on Section 815.6. [T]he operation of the Declaratory Judgment Act is procedural only and does not confer arising under [i.e., federal question] jurisdiction. Cal. Shock Trauma Air Rescue v. State Comp. Ins. Fund, 636 F.3d 538, 543 (9th Cir. 2011) (citation and internal quotation marks omitted). Therefore, the Court declines to exercise supplemental jurisdiction over the Former Employees California Contracts Clause and Section 815.6 claims. See 28 U.S.C. 1367(c). The Court does so for two interrelated reasons: one, the U.S. Constitution claim has been dismissed without leave to amend, and only the California Contracts Clause and CIVIL MINUTES GENERAL 4
Case 2:12-cv-03087-MWF-SP Document 35 Filed 11/26/12 Page 5 of 5 Page ID #:791 Section 815.6 claims remain; two, the California Contracts Clause and Section 815.6 claims appear to be proxies for a simple breach of contract claim, as both parties now have recognized and argued. Accordingly, this action is hereby DISMISSED without prejudice as to any existing or potential California claims for relief. Specifically, the Court makes no ruling with respect to the question whether under California law the Former Employees adequately can allege a binding contract or a breach of that contract. IT IS SO ORDERED. CIVIL MINUTES GENERAL 5