Opinion
F076642
04-06-2020
MICHAEL NEECE et al., Plaintiffs and Appellants, v. FRESNO UNIFIED SCHOOL DISTRICT, Defendant and Respondent.
Stuart R. Chandler and Stuart R. Chandler for Plaintiffs and Appellants. McCormick, Barstow, Sheppard, Wayte & Carruth, Timothy J. Buchanan and Vanessa M. Cohn for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 16CECG03238)
OPINION
APPEAL from a judgment of the Superior Court of Fresno County. Mark W. Snauffer, Judge. Stuart R. Chandler and Stuart R. Chandler for Plaintiffs and Appellants. McCormick, Barstow, Sheppard, Wayte & Carruth, Timothy J. Buchanan and Vanessa M. Cohn for Defendant and Respondent.
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Appellants Michael Neece (Neece) and Donna Neece appeal following the trial court's grant of respondent Fresno Unified School District's (FUSD) demurrer to their first amended complaint (FAC). Neece contends the trial court wrongly concluded that the facts stated could not support his claims that FUSD owed him certain retirement funds. For the reasons set forth below, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This case focuses upon Neece's claim that FUSD owes him retirement funds that were clawed back after his retirement due to an accounting error that arose because FUSD improperly reported his income. The following facts summarize appellants' FAC.
In 2012, Neece was hired by FUSD as its chief academic officer (CAO). He accepted a position lasting from July 1, 2012, through June 30, 2015. His employment agreement included a written contract that was attached to the FAC (Contract).
Neece had worked for many years previously, accruing a certain level of retirement credits and benefits. His new employment worked to increase those credits and benefits. Neece alleged he "was promised by FUSD that it would report his earnings ... so that his retirement benefits would continue to grow."
In 2013, Neece began considering whether he could retire. He met with representatives from the State Teachers' Retirement System (CalSTRS) and received documentation detailing his potential retirement benefits. At that time, he was told he would receive $14,166 per month if he retired by July 1, 2014. Based on this information, Neece chose to retire. As expected, he received monthly payments of $14,192.26 for a little over a year.
In August 2015, Neece received letters from FUSD and CalSTRS notifying him that an audit discovered FUSD had made a mistake when reporting his income. Ultimately, Neece's benefits were reduced and he was forced to repay CalSTRS its prior overpayments, totaling $12,537.98.
Based on the parties' arguments and the Contract, it appears that the parties agreed a portion of Neece's salary would count toward one type of retirement system but not toward the system that determined his final payments. This portion of the salary was reported to the system determining final payments regardless. More specifically, the Contract called for Neece to receive an annual salary of $195,000. In addition, the Contract provided Neece would receive $30,000 annually for " 'extra duty' " services and that this additional payment would "be processed as regular payroll but shall not be subject to contributions and deductions applicable to the traditional Defined Benefit program of [CalSTRS]." Rather, this portion of salary was to "be subject to the contributions and deductions applicable to the 'Defined Benefit Supplement Program' administered by [CalSTRS] ...."
The Contract also contained a provision cited as relevant by the parties. Entitled "Tax/Retirement Liability", this provision provided that, "Notwithstanding any other provision of this Agreement, [FUSD] shall not be liable for any retirement or state/federal tax consequences to the CAO .... The CAO shall assume sole liability for all state or federal tax consequences of this Agreement and all related payroll and retirement consequences. The CAO agrees to defend, indemnify and hold [FUSD] harmless from all such tax, retirement and similar consequences." (Underscoring omitted.)
Appellants' FAC sought to recover the difference between the amount Neece had been told he would, and did, receive and the amount that his benefits were ultimately reduced to. This difference, over the expected course of payment, was alleged to total more than $500,000. The FAC alleged five causes of action: (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) breach of duty to perform with reasonable care; (4) promissory estoppel; and (5) negligent misrepresentation.
FUSD filed a demurrer to the FAC. The trial court, after briefing and a hearing, ultimately granted the demurrer on all causes of action. On the breach of contract cause of action, the court reviewed the Contract and rejected any assertion that it could contain an "implied contractual covenant to accurately report earnings." The court then noted that the gravamen of Neece's damages, across all assertions, was "grounded on asserting the application of estoppel based on [Neece's] reliance on the mistaken calculation of [] Neece's projected retirement benefit." The court concluded estoppel was not permitted because to do so in this case would violate the public policy set forth in Education Code section 24616, that any overpayment of benefits "shall be deducted from any subsequent benefit that may be payable." (Original underscoring.) It then distinguished the core cases cited by Neece in his briefing.
The court similarly rejected Neece's good faith and fair dealing cause of action, finding it "is the same as the breach of contract count, so it is not actually a separate claim." The court further noted that such claims are limited to obtaining the benefit of the contract actually made, a contract in this case that expressly prevented Neece from receiving the benefits sought. The court rejected Neece's cause of action alleging a breach of duty to perform with reasonable care as duplicative of the first and second causes of action to the extent it "simply realleg[ed] the breach of an implied duty." And it rejected Neece's promissory estoppel cause of action on the previously discussed ground that such claims violate public policy and cannot stand. Finally, on Neece's negligent misrepresentation cause of action, the court concluded the claim arose in tort, not contract, and thus was subject to the immunity provided by Government Code section 818.8.
The court thus granted the demurrer on all causes of action, without leave to amend and dismissed the action with prejudice. This appeal timely followed.
DISCUSSION
Neece raises three related arguments that, combined, contend the trial court erred in dismissing each of the five causes of action raised. First, Neece alleges the trial court misinterpreted the Contract to exclude an implied term that FUSD would accurately report Neece's income for retirement purposes. Neece takes specific aim at the court's interpretation of the tax/retirement liability provision, arguing it applies "exclusively with the tax consequences for both state/federal tax consequences to the CAO or his beneficiary regarding both payroll and retirement tax obligations." Neece contends a cause of action lies where there is an implied duty to accurately report income and an erroneous overreporting.
Second, Neece alleges the trial court wrongly concluded that a reliance-based estoppel theory is against public policy. He contends the only applicable policy relates to the retirement policy administrator and not FUSD and his case is in line with Crumpler v. Board of Administration (1973) 32 Cal.App.3d 567 (Crumpler), which holds estoppel claims may proceed in certain circumstances.
Finally, Neece alleges that the trial court erroneously concluded FUSD was immune from negligent misrepresentation claims. He contends his claim arises in contract, not in tort, and thus the statutory bar on negligent misrepresentation claims against government agencies is inapplicable.
In response, FUSD argues that Neece's claims all fail for one overarching reason, a lack of any contract-based damages. Arguing the gravamen of all Neece's contract claims is an alleged reliance on the overreported income figures, FUSD alleges both that such claims are barred by public policy and that "[c]orrecting an overpayment to the contract level amounts to zero damages." It alleges any payment for reliance damages that exceeds Neece's expectations if the Contract had been fully performed would run afoul of basic contract law and California statutes limiting contract damages to the value of full performance of the contract. (See Civ. Code, § 3358.) In addition, FUSD challenges the notion that an implied contractual term for accurate reporting exists and argues the trial court properly determined Neece's claims were barred for the reasons noted above.
While we reject FUSD's assertion that there are no potential damages, we ultimately agree with the trial court that no implied term for accurate reporting exists and Neece's estoppel claim is unfounded. Thus, we affirm that the trial court properly granted FUSD's demurrer. Standard of Review
"A demurrer tests the legal sufficiency of the factual allegations in a complaint." (Regents of University of California v. Superior Court (2013) 220 Cal.App.4th 549, 558.) "When a demurrer is sustained, appellate courts conduct a de novo review to determine whether the pleading alleges facts sufficient to state a cause of action under any possible legal theory." (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1242.) "When conducting this independent review, appellate courts 'treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law.' " (Esparza v. Kaweah Delta Dist. Hospital (2016) 3 Cal.App.5th 547, 552.) "Where written documents are the foundation of an action and are attached to the complaint and incorporated therein by reference, they become a part of the complaint and may be considered on demurrer." (City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 800.) We may also consider matters subject to judicial notice and will affirm the judgment if any ground for the demurrer is well taken. (Ramirez v. Tulare County Dist. Attorney's Office (2017) 9 Cal.App.5th 911, 924.) "Where there is no possibility amendment would cure the complaint's defects, it is appropriate to sustain the demurrer without leave to amend." (City of Pomona, at p. 800.) Neece Cannot State a Breach of Contract Claim Under the Facts Pled
Neece broadly asserts his claims are properly pled, in part, because "Neece and [FUSD] entered into a contract, [FUSD] breached the contract and, as a result [appellants have] been damaged." Neece more specifically alleges, with respect to the first three and the fifth causes of action, that through an implied term of the Contract FUSD "was tasked with the responsibility to report [] Neece's income to CalSTRS and that, implied in that duty, was the duty to do so accurately." With respect to the damages incurred, Neece asserts that he properly relied on what CalSTRS told him about his future retirement payments, that those statements were predicated on false information arising from the alleged breach of contract, and that, therefore, Neece suffered damages in the form of lost income from retiring early. He states he is "only asking to be paid what he was told he would be paid."
Relevant law
The majority of Neece's claims turn on whether or not there is an implied duty to accurately report his income included in his employment Contract. "Implied terms 'are justified only when they are not inconsistent with some express term of the contract and, in the absence of such implied terms, the contract could not be effectively performed.' [Citations.] Implied terms 'are disfavored at law. The courts will not imply a better agreement for parties than they themselves have been satisfied to enter into, or rewrite contracts whenever they operate harshly.' " (Series AGI West Linn of Appian Group Investors DE, LLC v. Eves (2013) 217 Cal.App.4th 156, 168-169.) "A breach of the contract may also constitute a breach of the implied covenant of good faith and fair dealing. But insofar as the employer's acts are directly actionable as a breach of an implied-in-fact contract term, a claim that merely realleges that breach as a violation of the covenant is superfluous." (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 352.)
With respect to Neece's damages assertions, one type of damages recognized in contract actions is referred to as reliance damages. (Agam v. Gavra (2015) 236 Cal.App.4th 91, 105.) It is often described as permitting one who has been prevented from performing a contract to recover those expenses incurred in reliance on the contract. (Ibid.) However, one core limitation on such damages is that "the plaintiff should not be put ' "in a better position than he would have occupied had the contract been fully performed." ' " (Id. at p. 106.) Although usually expressed as actual expenses incurred, reliance damages may be used to recover lost wages from a former employer, provided such damages are not speculative or remote and are supported by substantial evidence. (See Toscano v. Greene Music (2004) 124 Cal.App.4th 685, 692 [acknowledging potential damages in promissory estoppel context].)
Neece could state a potential basis for damages
FUSD initially argues that under the assertions presented, Neece has suffered no damages. Although we agree Neece has overstated his potential damages, we conclude he can state a claim for damages under the facts alleged. The fundamental problem in Neece's assertions is a mixing and matching of tort and contract concepts. Neece's core concept of damages, a negligent act by FUSD resulting in harm, sounds most fully in tort. However, to avoid governmental immunity issues, Neece's claim must arise in contract and thus he argues his claim from the rubric of detrimental reliance on an implied contractual term.
As shown above, however, there is a well-settled and fundamental limitation on any reliance damages that Neece can pursue. Under contract law, "the plaintiff should not be put ' "in a better position than he would have occupied had the contract been fully performed." ' " (Agam v. Gavra, supra, 236 Cal.App.4th at p. 106.) FUSD properly notes that payment in the amount properly earned at the time of retirement necessarily means that Neece has not suffered any damages under the terms of his retirement package. It's further assertion, however, that this means no damages could arise under his employment Contract, takes this concept too far. Under the agreement Neece entered into—regardless of any implied duties to properly report income discussed below—he could reasonably expect to work until 2015. Yet, based on his assertion that a breach of the Contract occurred, he ceased working in 2014. Although not clearly expressed in the briefing, he could therefore properly allege damages arising from the failure to increase his potential retirement payments under an accurate calculation by the one year of work that he did not complete in reliance on the flawed execution of the alleged Contract. While there is no indication this is equivalent to the difference between what he was paid and what he was told he would be paid, it is a quantifiable amount that could be alleged as damages if a proper breach of contract was alleged.
Our analysis of damages should not be understood to endorse any underlying theory of liability. As discussed below, we conclude that Neece cannot state a breach of contract claim regardless of the potential to identify damages under the asserted facts.
Neece cannot allege breach of an implied duty to accurately report
Having concluded a lack of damages is not a proper basis to grant the demurrer in this case, we turn to the grounds relied on by the trial court. One of these grounds was the trial court's conclusion that there could be no implied contractual term to accurately report Neece's compensation to CalSTRS. As noted above, Neece contends the trial court wrongly concluded his employment Contract precluded such a term and argues the fact he was not required to report his own income and the general legal obligation on FUSD to perform the Contract with adequate care supports his contention that such a term exists. We do not agree.
Implied contractual terms are disfavored in the law and they therefore arise only when they are not inconsistent with some express term of the contract and, in the absence of such implied terms, the contract could not be effectively performed. (Series AGI West Linn of Appian Group Investors DE, LLC v. Eves, supra, 217 Cal.App.4th at pp. 168-169.) Indeed, to imply a term to a contract, that term must be so integral to the agreement and clearly within the contemplation of the parties that it can be assumed the parties did not need to state it. (See Avidity Partners, LLC v. State of California (2013) 221 Cal.App.4th 1180, 1208 [rejecting claim contract included term to timely approve harvest plan].)
The term Neece seeks to imply here is one where FUSD is required not only to report his income to CalSTRS, but also to report it accurately. We do not agree such an implied term is legally supported under the facts pled. The Contract is one for employment as the CAO for FUSD. It sets forth his obligations to perform the required duties of that position, the payments and benefits that he will receive for doing so, and the ways in which that employment may end. The Contract is not one setting forth the terms or conditions of his future retirement. Thus, as an initial problem, terms concerning the reporting of Neece's income for retirement purposes are neither integral to the agreement nor of the type that Neece and FUSD could not complete the Contract without. Accordingly, the facts pled do not demonstrate an accurate reporting term should be implied.
The lack of importance regarding reporting is highlighted by contrasting its exclusion with the importance of setting the agreed upon compensation and identifying which parts of it should apply to future retirement rights, both of which were included in the terms of the Contract. Such terms are important to prevent the precise argument Neece makes in reply that preclusion of a suit here would prevent recovery if a massive underreporting of compensation had occurred. In such a scenario, the identification of the proper basis that should have been reported would protect against any misreporting error and ensure Neece receives the benefit of both his employment Contract and his independent retirement rights arising from that Contract.
In addition, we agree with the trial court's conclusion that including such a term would be inconsistent with the tax/retirement liability provision. While Neece argues this provision applies only to tax issues, the actual wording of the provision is not so limited. The provision disjointedly identifies and discusses tax liabilities and retirement liabilities, demonstrating both are independent concepts. While the provision does not specifically reject any obligation to accurately report Neece's compensation for retirement purposes, it does demonstrate an intent to divest FUSD from potential liabilities arising from future retirement consequences. Under the specific terms of the Contract, FUSD "shall not be liable for any retirement or state/federal tax consequences to" Neece and Neece "shall assume sole liability for all state or federal tax consequences of this Agreement and all related payroll and retirement consequences." As both parties note, one potential retirement consequence identified in the law is the obligation in some circumstances for FUSD to repay CalSTRS when CalSTRS has overpaid a retiree based on FUSD's inaccurate reporting. (See Ed. Code, § 24616.5.) Placing the responsibility for such retirement consequences on Neece is clearly inconsistent with implying a term to the Contract requiring FUSD not to make an overreporting mistake in the first instance.
As Neece concedes in his briefing, the first, second, third and fifth causes of action all fail if there is no implied duty to accurately report Neece's income to CalSTRS. Neece Cannot State an Estoppel Claim
Neece's fourth cause of action asserts FUSD is equitably estopped from arguing he is not entitled to the retirement payments he was quoted. The parties argue this claim independently from those where they agree the existence of an implied term requiring accurate reporting resolve the disputes. We thus take up this claim separately.
Relevant law
Claims for equitable estoppel are well defined. They require that: (1) the party to be estopped is apprised of the facts; (2) the party intends his or her conduct shall be acted upon or acts in a manner that the party asserting estoppel rightfully believes they may act upon the conduct; (3) the other party is ignorant of the true state of facts; and (4) the other party reasonably and detrimentally relies on the conduct. (Schafer v. City of Los Angeles (2015) 237 Cal.App.4th 1250, 1261.) "An additional requirement applies in cases involving equitable estoppel against the government. In such a case, the court must weigh the policy concerns to determine whether the avoidance of injustice in the particular case justifies any adverse impact on public policy or the public interest. [Citations] Even if the four elements of equitable estoppel are satisfied, the doctrine is inapplicable if the court determines that the avoidance of injustice in the particular case does not justify the adverse impact on public policy or the public interest." (Ibid.) Thus, the " 'doctrine "ordinarily will not apply against a governmental body except in unusual instances when necessary to avoid grave injustice and when the result will not defeat a strong public policy." ' " (Id. at p. 1262.) While the existence of equitable estoppel is generally a factual question, in cases against the government, "the existence of estoppel is in part a legal question to the extent it involves weighing policy concerns to determine whether the avoidance of injustice in the particular case justifies any adverse impact on public policy or the public interest." (Id. at p. 1263.)
Discussion
The trial court concluded that estoppel could not be invoked because doing so in this case would violate the public policy set forth in Education Code sections 24616 and 24616.5. Neece argues this conclusion is incorrect because Education Code sections 24616 and 24616.5 apply only to CalSTRS and thus do not set out a policy relevant to his dispute with FUSD. He further argues this case is resolved by Crumpler, a case where estoppel was applied against a government agency that misclassified employees for retirement purposes. We conclude the trial court correctly found estoppel could not be raised under the facts pled.
Before reaching the public policy reasons articulated by the trial court, we note that the nature of Neece's claims raises serious issues within the general requirements for seeking relief under an estoppel theory. The conflict between Neece's desire to pursue relief against FUSD and his inability to do so against CalSTRS results in allegations that FUSD made statements to CalSTRS that FUSD knew or should have known would result in CalSTRS making statements to Neece that he would reasonably rely upon to his detriment. Such an attenuated connection between FUSD's alleged acts and statements and the conduct resulting in Neece's actions falls short of facts demonstrating FUSD either directed an act toward Neece or intended that its conduct be acted upon by Neece.
Neece's claim is really that CalSTRS's statements were what caused him to act. His claim should thus be directed to CalSTRS. To the extent he seeks to assert claims against FUSD's reporting to CalSTRS, Neece is essentially seeking to place himself in CalSTRS's shoes with respect to FUSD's actions. Such allegations fail to meet the requirements of an equitable estoppel claim. (See Lusardi Construction Co. v. Aubry (1992) 1 Cal.4th 976, 995 [without privity biding various agencies, conduct by one resulting in estoppel claims will not be attributed to the other].)
Similarly, equitable estoppel claims require that the party seeking estoppel be ignorant of the true state of facts. Such allegations appear to be lacking here as well. The Contract shows that the parties agreed upon the facts relevant to reporting Neece's income to CalSTRS—identifying which types of compensation will be subject to withholding and contribution requirements. This Contract demonstrates that FUSD was aware of how Neece's income should have been reported. It equally demonstrates, however, that Neece was also aware of how his income should have been reported. This means Neece was in a position to, and likely did know the true state of facts concerning the meaning of his compensation figures. As such, the FAC appears to lack sufficient facts to support an equitable estoppel theory on two elements.
Even if these shortcomings in the pleadings were not fatal, a claim of equitable estoppel against the government requires a legal analysis whether the avoidance of injustice justifies any adverse impact on public policy or the public interest. (Schafer v. City of Los Angeles, supra, 237 Cal.App.4th at p. 1261.) As FUSD notes, and the trial court concluded, there is a public policy reflected in the relevant statutory scheme that states overpayment of retirement benefits should be returned, even if those overpayments are due to overreporting by the employer. (See Ed. Code, §§ 24616, 24616.5, 24617.)
Neece seeks to avoid this policy by arguing it is focused on the interaction between CalSTRS and its members, not between Neece and FUSD. We do not agree the policy is so limited. The law specifically provides that overpayments shall be deducted from subsequent benefits, even when those overpayments are due to improper reporting on the part of the employer. (Ed. Code, § 24617.) This is paired with requirements that benefits be recalculated where the employer has reported erroneous information and that those overpayments are collected even if they must come from the employer itself. (Ed. Code, § 24616.5.) The policy outlined, then, is that beneficiaries are entitled to their contractually guaranteed payments, no more and no less, regardless of the reason.
The statutory repayment structure solidifies our conclusion that the overall policy is designed to ensure members are ultimately paid what they have earned. The statute does not reduce a member's total benefits below what they are entitled to under a proper calculation. Rather it recoups the funds by treating the prior overpayments as advances and reducing future payments up to a maximum percentage until the overpayments are recouped. (Ed. Code, § 24617.) Thus, while the statutory scheme seeks repayment of funds to CalSTRS, the policy that scheme implements is broader, focusing on ensuring that members are paid what they have earned, regardless of errors that may require adjustments.
Having defined the policy, the question becomes whether the injustice allegedly suffered by Neece—being told he would receive and initially receiving greater compensation than he had properly earned, then having his payments reduced to correct that error—justifies forcing FUSD to pay what Neece was told he would receive, thereby undercutting the policy that members are paid according to what they properly earned. We, like the trial court, conclude that the harm Neece alleges is not sufficiently grave to justify impinging on the general policy that members are paid what they have earned. The adjustment to Neece's income, while certainly frustrating to him, is not a grave harm given that he is still receiving payment according to what he properly earned under the Contract and his past employment. Against the overall policy of the statutes discussed above, justice does not demand we apply equitable estoppel to the facts alleged.
We note that Neece has raised no claim or argument that FUSD, and not Neece, was responsible to pay any overpayments received before the error was caught under the "except as provided in [Education Code s]ection 24616.5" provision of Education Code section 24616, and the employer pays requirement of Education Code section 24616.5. With no substantive briefing on this issue, we take no position on how those statutes should be read, nor how Neece's contract should be read with respect to potential liability under such a claim.
We likewise reject Neece's argument that the facts of this case are so similar to those in Crumpler that equitable estoppel must be applied. In Crumpler, employees were told by their employer that they would be classified in a certain manner that provided them with greater benefits than they would receive in a different classification. Much later, after relying on that classification both in continuing their employment and making increased payments into the retirement fund, they were told the classification was erroneous and they would be retroactively reclassified at the lower classification. There was no statute requiring classification in that category. Under these facts, the court found estoppel was available to preclude retroactive reclassification but that it would contravene public policy to prevent reclassification going forward once the error was identified. (Crumpler, supra, 32 Cal.App.3d at pp. 582-585.)
This case is significantly different from Crumpler. Here, Neece has alleged no statement made directly to him by the parties he seeks to estop. Rather, he contends a secondary effect of information passed from FUSD to CalSTRS warrants the actions. Further, unlike Crumpler, there is a statute specifically requiring the action contested—here that overpaid funds be collected—rather than a discretionary action on the part of the actor. Finally, unlike Crumpler, the actions here are not designed to be retroactive with respect to Neece's employment status. Rather, they are corrections moving forward from the point the error was identified. Thus, properly earned benefits are not being reduced in the same way they were in Crumpler. For all these reasons, and those discussed above, we find Crumpler does not control here and the trial court correctly granted FUSD's demurrer. As Neece makes no argument further amendment could cure the errors identified, and we see none, we affirm the dismissal without leave to amend.
DISPOSITION
The judgment is affirmed. Costs are awarded to respondent.
/s/_________
HILL, P.J. WE CONCUR: /s/_________
LEVY, J. /s/_________
PEÑA, J.