SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO DATEITIME JUDGE July 20, 2012 9:00 a.m. HON.

MICHAEL KENNY

DEPT. NO
CLERK

31 S.LEE

DANIEL E. FRANCIS, Petitioner, v. BOARD OF ADMINISTRATION FOR THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, et aI., Respondents.

Case No.: 34-2011-80000841

J. CLARK KELSO; JUDICIAL COUNCIL OF CALIFORNIA, ADMINISTRATIVE OFFICE OF THE COURTS; CALIFORNIA PRISON HEALTHCARE RECEIVERSHIP CORPORATION, Real Parties in Interest.

Nature of Proceedings:

DEMURRER TO FIRST AMENDED PETITION FOR WRIT OF MANDAMUS AND/OR OTHER APPROPRIATE RELIEF

The following shall constitute the Court's tentative ruling on the demurrer to the First Amended Petition for Writ of Mandamus and/or Other Appropriate Relief, which is scheduled to be heard by the Court on Friday, July 20, 2012 at 9:00 a.m. in Department 31. The tentative ruling shall become the final ruling of the Court unless a party wishing to be heard so advises the clerk of this Department no later than 4:00 p.m. on the court day preceding the hearing, and further advises the clerk that such party has notified the other side of its intention to appear.
In the event that a hearing is requested, oral argument shall be limited to no more than 20 minutes

per side. Procedural Background This is a petition for writ of mandate under Code of Civil Procedure section 1085 and a complaint for declaratory and injunctive relief in which petitioner, a retired state employee and member of

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CalPERS, seeks an order invalidating the membership of real party in interest J. Clark Kelso in respondent CaIPERS. Petitioner alleges that Kelso, as the Receiver for the California Prison Health Care System under appointment of the u.S. District Court, is ineligible for CalPERS membership because he does not meet the statutory membership requirement that he be employed by the state and compensated with funds at least partly controlled by the state. (See, Government Code sections 20028, 20069,20370, 20380.) This is the second time the issue ofthe sufficiency of the petition and complaint has been before the Court. Petitioner's initial pleading in this matter named only the CalPERS Board of Administration as the respondent. Upon its filing, the case was assigned to Department 42 of this Court, Hon. Allen Sumner, presiding. Respondent filed a demurrer to the petition and a motion to strike. The demurrer raised three issues: failure to exhaust administrative remedies, failure to join indispensable parties (including Kelso), and lack of standing by petitioner to assert his claims against CalPERS. The motion to strike was directed specifically to petitioner's prayer for attorney's fees. On August 12, 2011, Judge Sumner overruled the demurrer regarding exhaustion of administrative remedies, sustained the demurrer regarding joinder of indispensable parties with leave to amend, and sustained the demurrer regarding standing on one of the grounds asserted, specifically, that petitioner's allegations failed to demonstrate that he has a special interest in the determination of Kelso's CalPERS membership over and above the interest of the public or CaIPERS' membership at large. Judge Sumner requested further briefmg on the issue of whether petitioner had standing to bring this action as a taxpayer under Code of Civil Procedure section 526a, and deferred a ruling on the demurrer pending joinder of the other indispensable parties and receipt of the supplemental briefs. Petitioner subsequently amended the petition and served Kelso, the Judicial Council of California-Administrative Office of the Courts, and the California Prison Healthcare Receivership Corporation (the entity established to operate the prison healthcare system under the direction of the Receiver) as real parties in interest. The case subsequently was reassigned to this Department when the Court reduced the number of its writ departments at the end of 20 11. The case is now before the Court solely for a continued hearing on the demurrer regarding petitioner's alleged lack of standing as a taxpayer under Code of Civil Procedure section 526a. The Court has received and reviewed the briefing on the original demurrer as it relates to taxpayer standing, and the supplemental briefing submitted by all the parties, including the real parties in interest. Legal Standard for Demurrer In ruling on the sufficiency of a complaint on demurrer, the court treats the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions offact or law. The court also may consider matters properly subject to judicial notice. It gives the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (See, Blake v. Kirwan (1985) 39 Cal. 3rd 311,315.) Evidentiarv Issues Petitioner and respondent CalPERS submitted requests for judicial notice with their briefing on the original demurrer.

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Judge Sumner's August 12,2011 did not rule explicitly on respondent's request, which was filed on May 31, 2011, although the ruling referred to several of the exhibits attached to the request. Petitioner did not object to the request. Respondent's request for judicial notice filed May 31, 2011 is therefore granted. Respondent objected to petitioner's request for judicial notice, filed on July 25, 2011, on the ground of relevance, except for items 10, 11, 15, 16, 19 and 20. In his ruling, Judge Sumner did not rule on the objection. (See, Ruling on Demurrer and Motion to Strike, page 3, footnote 1.) In its briefing submitted for the present hearing on the demurrer, respondent asks the Court to rule on the objection. Respondent's objection is sustained. The documents contained in the request to which respondent has objected are not relevant to the issues presently before the Court on demurrer, in particular, the issue of petitioner's standing, but go to the merits of petitioner's claim. (See, Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal. 4th 1057, 10631: only relevant material is properly subject to judicial notice.) Moreover, many of the documents relate to factual disputes between the parties, such as whether Kelso is actually employed by a state agency, and the court ruling on a demurrer cannot decide a question that may depend upon disputed facts by means of judicial notice. (See, Fremont Indemnity Co. v. Fremont General Corporation (2007) 148 Cal. App. 4th 97, 114-115.) Finally, although respondent did not object to items 10, 11, 15, 16, 19 and 20, the Court grants the request for judicial notice only to the extent of taking notice of the existence of the documents, but does not take judicial notice of the truth of facts stated therein, or of" ... what might factually be associated with or flow therefrom." (See, Cruz v. County of Los Angeles (1985) 173 Cal. App. 3rd 1131, 1134.) The parties have submitted various evidentiary materials in connection with the supplemental briefing on the demurrer, which have generated objections. The Court rules on the evidentiary objections as follows. The objection by real parties in interest to the Declaration of Runs ton Maino, submitted by petitioner, is sustained. The declaration offers extrinsic evidence which is not properly considered on demurrer. (See, Lambert v. Carneghi (2008) 158 Cal. App. 4th 1120, 1126.) The objection by respondent CalPERS to petitioner's Request for Judicial Notice filed on February 22, 2012, Exhibits 1-7, is sustained. The objection by petitioner to the Request for Judicial Notice filed on April 4, 2012 by real parties in interest is also sustained. The documents contained in the requests are not relevant to the issues presented by the demurrer, in particular, to the issue of petitioner's standing, but go to the merits of petitioner's claim. (See, Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal. 4th 1057, 1063: only relevant material is properly subject to judicial notice.) Moreover, many of the documents relate to factual disputes between the parties, such as whether Kelso is actually employed by a state agency, and the court ruling on a demurrer cannot decide a question that may depend upon disputed facts by means of judicial notice. (See, Fremont Indemnity Co. v. Fremont General Corporation (2007) 148 Cal. App. 4th 97,114-115.) Discussion The First Amended Petition alleges three causes of action against respondent for accepting Kelso's membership in CaIPERS. First, it alleges that acceptance of Kelso's CalPERS membership violates respondent's duties related to administration of the state retirement system under the California Constitution, Article XVI, Section 17, subdivisions (b) and (c). Second, the petition alleges that
1

Overruled on other grounds related to federal preemption of regulation of tobacco advertising in In re Tobacco

Cases II (2007) 41 Cal. 4th 1257, 1276.

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acceptance of Kelso's membership violates the legal standards for determining who is a state employee under Government Code section 20028. Third, the petition alleges that acceptance of Kelso's membership constitutes a gift of public funds in violation of the California Constitution, Article XVI, Section 6. Read as a whole, and given a reasonable interpretation, the petition and complaint alleges, in essence, that Kelso, who previously had been a state employee eligible for CalPERS membership, left state employment to accept a position as the federally-appointed Receiver for the prison health care system, in which he no longer, as a matter offact, was a state employee. It is further alleged that, notwithstanding the fact that Kelso was no longer a state employee, he entered into an agreement with real party in interest AOC, the sole purpose of which was to create the appearance of state employment, without the reality of such employment, in order to permit Kelso to qualify for CalPERS membership while serving as the federal Receiver. The petition and complaint further alleges that, as a result of this arrangement, Kelso's CalPERS pension will be sharply "spiked" because his salary as the federal Receiver greatly exceeds his earlier salary as a state employee, and will be counted as his highest year of compensation, such that he will become, upon retirement, one of the highest paid recipients ofCalPERS pensions. The petition and complaint further alleges that Kelso will be qualified for lifetime defined pension and health benefits through CalPERS at public expense. It reasonably may be inferred that this will create a significant added financial burden on the CaIPERS pension system. The common thread in all three causes of action is petitioner's allegation that Kelso is not, as a matter offact, a state employee as that term is defined for CalPERS membership purposes in Government Code section 20028, and that respondent erred when it determined that he is a state employee entitled to CaIPERS membership, and errs when it continues to treat him as such. Regardless of whether petitioner ultimately may prove these allegations, the Court must accept them as true for the purposes of ruling on the demurrer. Having done so, the Court concludes that petitioner has standing as a taxpayer to assert his claims. Code of Civil Procedure section 526a, which provides the basis for taxpayer standing, is a remedial statute which is to be liberally construed to further its intended purpose: to permit a large body of persons to challenge wasteful or illegal governmental action that otherwise would go unchallenged because of the standing requirement. The statute is properly invoked where some illegal expenditure or injury to the public fisc is occurring or will occur, or to control illegal governmental activity. (See, Humane Society a/the United States v. State Board a/Equalization (2007) 152 Cal. App. 4th 349, 361.) In this case, petitioner alleges that CalPERS acted in violation of law when it approved Kelso's membership in the system, because Kelso, while serving as the federal Receiver, does not meet the legal requirements for membership as a state employee set forth in Government Code section 20028. CalPERS' determination, ifnot correct under the governing law, would result in the payment of state retirement benefits to a person not entitled to receive them. Such payment could be characterized as an improper gift of public funds, or a payment in violation oflaw. Petitioner therefore seeks to control illegal governmental activity and a potential illegal expenditure of public funds by obtaining an order correcting respondent's alleged violation oflaw.

It is clear from the supplemental briefing filed by respondent and real parties in interest that this alleged violation of law would go unchallenged if taxpayer standing were not to be recognized here. Those parties argue that only the person whose membership is at issue (here, Kelso), and the entity that stands as the person's state employer (here, AOC) have the right to challenge a membership

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determination, and that no other CalPERS member or member of the general public has any right to be heard. As the Court concluded in its initial ruling on the demurrer, another CalPERS member such as petitioner has no administrative remedy available through CalPERS to challenge a determination such as the one at issue here. Thus, a favorable membership determination that violated applicable law effectively could escape review without the possibility of taxpayer standing. As respondent and real parties in interest argue, taxpayer standing under Section 526a does not apply to cases in which the matter at issue involves the legitimate exercise of discretion by a governmental agency and the petitioner alleges, in effect, that the agency refused to act or exercised its discretion in a mistaken way. (See, Daily Journal C01p. v. Metropolitan News Company (2009) 172 Cal. App.4th 1550, 1558; Humane Society of the United States v. State Board of Equalization, supra, 152 Cal. App. 4that 356-357.) It does apply, however, where the petitioner seeks to measure governmental performance against a legal standard which does not require the court to trespass into the domain of legislative or executive discretion. (See, San Miguel Consolidated Fire Protection District v. Davis (1994) 25 Cal. App. 4th134, 145.) The Court finds that this case is not one in which petitioner seeks review of a wholly discretionary judgment such as the decision in the Daily Journal case not to pursue a particular monetary claim. Instead, this is a case in which respondent has authority to exercise its discretion within defined legal standards, specifically, the requirements of Government Code section 20028. In essence, petitioner contends that respondent abused its discretion by approving Kelso's CalPERS membership for his service as federal Receiver in violation of those legal standards. Abuse of discretion is a well-established basis for review in writ of mandate cases under Code of Civil Procedure section 1085, and writ review is available to challenge governmental activity in violation oflaw. The petition and complaint in this case states a claim for issuance of a writ of mandate and other relief based on respondent's abuse of discretion in the form of failure to comply with the legal standards applicable to membership decisions. (Indeed, respondent's initial demurrer did not assert that the petition and complaint failed to state a claim based on abuse of discretion.) The Court therefore concludes that petitioner has standing as a taxpayer to bring this action. In his original opposition to respondent's demurrer, petitioner argued that he had standing to bring this action under the public interest exception to the normal beneficial interest rule. Judge Sumner's ruling on the demurrer did not reach this issue, and it was not included in his order for supplemental briefing. Nevertheless, the Court finds that it is appropriate to address the issue as an alternative ground for petitioner's standing. Courts have recognized a public interest exception to the requirement that the petitioner have a beneficial interest in the outcome of the action where the case involves an issue of public right and the object of mandamus relief is to procure the enforcement of a public duty. In such a case, the petitioner need not show that he or she has any legal or special interest in the result, since it is sufficient that he or she is interested in a citizen in having the laws executed and the duty in question enforced. This exception to the normal standing rules promotes the policy of guaranteeing citizens the opportunity to ensure that no governmental body impairs or defeats the purpose of legislation establishing a public right. (See, Sacramento County Fire Protection District v. Sacramento County Assessment Appeals Board (1999) 75 Cal. App. 4th327,333.) The policy underlying the exception may be outweighed by competing considerations of a more urgent nature. Thus, the propriety of a citizen's suit requires ajudicial balancing of interests. The interest of a citizen may be considered sufficient when the public duty is sharp and the public need weighty. (See, Waste Management 0/ Alameda County, Inc. v. County 0/ Alameda (2000) 79 Cal. App. 4th 1223, 1237.)

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In balancing the interests, the fact that the action may disrupt or impede the administrative process weighs against allowing standing. (See, Sacramento County Fire Protection District v. Sacramento County Assessment Appeals Board, supra, 75 Cal. App. 4that 334.) Another factor that weighs against standing is if the action intrudes upon the remedial discretion of a public agency that is able to protect its own interests. (See, Waste Management of Alameda County, Inc. v. County of Alameda, supra, 79 Cal. App. 4that 1237.) On the other hand, the fact that an issue may effectively be removed from judicial review weighs in favor of standing. (See, Sacramento County Fire Protection District v. Sacramento County Assessment Appeals Board, supra, 75 Cal. App. 4that 334.) In this case, as discussed above, the Court finds that issues raised by petitioner will effectively be removed from judicial review if standing is not recognized. The Court also finds that the public duty involved in this case is sharp and the public need weighty. It is undeniable that issues such as the proper administration of public pension systems, the long-term fiscal viability of such systems, the making of pension benefit determinations with long-term fiscal ramifications with limited or no public accountability,and individual cases of pension "spiking" for high-level government officers; have become matters of critical, and legitimate, public concern. In these times offiscal crisis, the public duty of pension administrators to act in compliance with the law is sharp, and the public need to provide a means of review and accountability when they allegedly fail to do so is weighty. These factors weigh very significantly in favor of recognizing petitioner's standing to bring the present action. On the other side of the scale, the Court finds the competing considerations to be of a less urgent nature. The argument raised by respondent and real parties in interest that allowing standing here will open the floodgates of litigation and thus interfere with CaIPERS' ability to administer the system properly is not persuasive. This case appears to present unique, or at least unusual, facts. No showing has been made that similar cases are likely to recur in any great numbers. It thus is not apparent that recognizing petitioner's standing in this case will result in unwarranted interference in CalPERS' administrative process. (Nor is it apparent how shielding such cases from judicial review, whatever their numbers, promotes the public interest in proper administration of the state pension system.) Similarly, this is not a case which intrudes on the remedial discretion of an agency able to protect itself. Instead, this is a case which seeks to provide a remedy that CalPERS and real parties in interest claim that CalPERS cannot provide. The Court therefore concludes that petitioner has standing to bring this action either as a taxpayer under Code of Civil Procedure section 526a, or under the public interest exception to the normal beneficial interest rules of standing. The demurrer accordingly is overruled. Respondents and real parties in interest are to answer the petition and complaint within 10 days as provided in Rule of Court 3.1320(g).

In the event that this tentative ruling becomes the final ruling of the Court, the final ruling will be confirmed by minute order and no further written order shall be required.

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