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ARTHUR A. HARTINGER (SBN Bsa |
ahartinger@publiclawy Osu FKAMEDA COUNTY
LINDA M. ROSS (SBN 133874)
lross@publiclawgroup.com MAR 2 9 2019
RYAN MCGINLEY-STEMPEL (SBN 296182)
mmeginleystempel@publiclawgroup.com CLERK OF TH, 5S}
RENNE PUBLIC LAW GROUP® By .
350 Sansome Street, Suite 300
San Francisco, California 94104
Telephone: (415) 848-7200
Facsimile: (415) 848-7230
ER
Attorneys for Plaintiffs/Petitioners
ALAMEDA HEALTH SYSTEM and ANTHONY |
REDMOND
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF ALAMEDA = CPF -19-516795
ALAMEDA HEALTH SYSTEM and ANTHONY | Case No. RG19006178
REDMOND,
EXEMPT FROM FEES (GOV. CODE §6103)
Plaintiffs/Petitioners,
: . FIRST AMENDED VERIFIED PETITION
ve FOR WRIT OF MANDATE AND/OR OTHER
. APPROPRIATE RELIEF; VERIFIED
ALAMEDA COUNTY EMPLOYEES’ COMPLAINT FOR DECLARATORY
RETIREMENT ASSOCIATION; BOARD OF RELIEF, BREACH OF CONTRACT,
RETIREMENT OF THE ALAMEDA COUNTY BREACH OF THE COVENANT OF GOOD.
EMPLOYEES’ RETIREMENT ASSOCIATION; FAITH AND FAIR DEALING, AND
DAVID NELSEN, in his Official Capacity as VIOLATION OF PUBLIC RECORDS ACT
Executive Director of the Alameda County
Employees’ Retirement Association, ALAMEDA DEMAND FOR JURY TRIAL
COUNTY, and DOES 1 — 100,
Defendants/Respondents,
Petitioners ALAMEDA HEALTH SYSTEM (“AHS”) and ANTHONY REDMOND
(“Redmond”) (collectively “Plaintiffs/Petitioners”) hereby petition this Court for a writ of mandate
pursuant to California Code of Civil Procedure section 1085, for declaratory and injunctive relief, and for
damages, against Respondents and Defendants ‘ALAMEDA COUNTY EMPLOYEES’ RETIREMENT
ASSOCIATION (“ACERA”), the BOARD OF RETIREMENT OF THE ALAMEDA COUNTY
EMPLOYEES’ RETIREMENT ASSOCIATION (the “ACERA Board” or the “Board”), DAVID
NELSEN, in his Official Capacity as Executive Director of the Alameda County Employees’ Retirement
Association, and for declaratory and injunctive relief, and damages, against ALAMEDA COUNTY, and
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT
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INTRODUCTION
1. This Petition and Complaint (collectively “Complaint”) stems from ACERA
systematically overcharging AHS for its fair and equitable share of unfunded pension liabilities
attributable to AHS’s employees and retirees. ACERA has been overcharging AHS for years, including
an estimated $12.4 million for the 12/31/2014 valuation year, and annually thereafter, thereby causing
AHS to unfairly subsidize the unfinded pension liabilities of other employers who are members of
ACERA (known as “Participating Employers”). Despite AHS’s request that ACERA rectify its costing
methodology for unfunded liabilities, ACERA steadfastly refuses to do anything, claiming that it has:
unfettered and plenary discretion to set the Participating Employer contribution rates, despite the fact that
the methodology is inequitable an outright capricious. In part, ACERA is acting at the behest of
ALAMEDA COUNTY (“COUNTY” or “ALAMEDA”, the largest plan sponsor and who dominates
ACERA’s Board of Directors, ACERA has acquiesced to the COUNTY’s interests to ensure the
COUNTY is subsidized by AHS, and the COUNTY’s costs are artificially lowered. As justification for
this discrimination against AHS, ACERA has offered false and pretextual reasons — all of which
constitute evidence that its refusal.to seriously consider and implement a fair costing methodology is
arbitrary and capricious and in viclation of its constitutional and statutory duties.
2. Through this actior, AHS seeks to compel ACERA to establish a fair and equitable
costing methodology going forward that does not require AHS to subsidize other Participating
Employers. Through this action, AHS seeks a declaration as to the responsibility of the COUNTY for
the unfunded liabilities attributable to employees for their work for the COUNTY before the COUNTY
transferred operation of the hospital system to AHS:
3. Through this actior, AHS also seeks to compel the COUNTY to produce documents
requested by AHS pursuant to the California Public Records Act (“CPRA”) before filing this action. The -
COUNTY did not comply with the CPRA, and has never fully complied with its responsibility to
produce documents for inspection and duplication. Accordingly, AHS’s efforts to gather information as
part of its due diligence in advance of litigation has been thwarted. Therefore, this action also seeks an
order compelling the COUNTY to comply with AHS’s earlier requests made pursuant to the CPRA, and
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
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for reasonable associated attorneys’ fees. To the extent that additional information becomes available
pursuant to AHS’s CPRA requests, AHS will seek to amend this Complaint to include any appropriate or
necessary additional allegations to support its causes of action.
THE PARTIES
4, Defendant/Responcent ACERA is, and all times herein mentioned was, a public agency:
located in the County of Alameda. As more fully described herein, ACERA is the retirement pension
plan for COUNTY employees, as well as other public agencies in the COUNTY who join as
Participating Employers.
5. Defendant/Respondent ACERA Board is, and all times herein mentioned was, the board
of a public agency located in the County of Alameda and charged with administering ACERA.
6. Defendant/Respondent COUNTY OF ALAMEDA is, and all times herein mentioned was,
a public agency and a political sutdivision of the State of California. Alameda is located in and
comprises the County of Alameda.
7. Plaintiff/Petitioner AHS is, and all times herein mentioned was, a public agency located in
the County of Alameda. AHS is an integrated public health care system of five hospitals and four
wellness centers with over 800 beds and 1,000 physicians. AHS’s mission, in part, is to fulfill the
County’s legal obligation to provide meaningful, quality and necessary medical care to the COUNTY’s
most vulnerable citizens pursuant to Welfare and Institutions Code section 17000, which provides in
pertinent part: “Every county and every city and county shall relieve and support all incompetent, poor,
indigent persons, and ‘those incapzcitated by age, disease, or accident, lawfully resident therein, when
such persons are not supported and relieved by their relatives or friends, by their own means, or by state
hospitals or other state or private institutions.”
8. Plaintiff/Petitioner Anthony Redmond (“Redmond”) is an employee of AHS and a
member of ACERA. Redmond regularly makes employee contributions to ACERA to fund his
retirement. ACERA owes Redmond and other AHS employees who are members of ACERA a duty of
loyalty to administer the plan in a manner that is fair and not prejudicial to the interests of AHS and its
employees. Redmond sues in his individual capacity in that ACERA’s costing methodology (as more
fully described herein) has created tangible harm to him (as well as other AHS employees) by negatively
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
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impacting AHS’s budget and resources which could otherwise be devoted to fund personnel-related costs.
and working conditions critical te AHS’s mission, AHS has a projected budget deficit of approximately
$80 million.for the fiscal year 2020. This budget deficit must be addressed in the next sixty to ninety
days. Based on this budget deficit, AHS employees face the serious probability of work force reductions
and/or compensation reductions. :
9. The true names ard capacities of the Defendants/Respondents named herein as Does 1 —
100, inclusive, are unknown to AHS, who therefore sues such Defendants/Respondents by fictitious
names. At all times mentioned herein, Defendants/Respondents, and each of them, inclusive of DOES 1
through 100, were authorized and empowered by each other to act, and did so act, as agents of each
other, and all of the things hereir. alleged to have been done by them were done in the capacity of such
agency. Upon information and telief, all Defendants/Respondents are responsible in some manner for
the events described herein and are liable to Plaintiffs for the damages they have incurred. AHS will
seek leave of court to amend this Complaint to allege the true names and capacities of such
Defendants/Respondents, together with any necessary additional charging allegations, at such time as the |
same have been fully ascertained. :
/ _ VENUE
10. All parties are located in the County of Alameda, and all acts and omissions at issue
occurred in the.County of Alameda. But ‘AHS, ACERA and the COUNTY are public agencies located in ;
Alameda County, and on information and belief, the staff serving the Superior Court of the County of
Alameda are members of ACERA. Accordingly, under Code of Civil Procedure section 394, and related |
authority, AHS will seek transfer to a neutral county or seek the appointment of a Superior Court Judge
from a neutral jurisdiction to preside over this case.
, FACTUAL ALLEGATIONS
/ MASTER CONTRACT
11. In 1996, the state legislature enacted Health and Safety Code section 101850, which
authorized the COUNTY to transfer the governance of the Alameda County Health System to an
independent “hospital authority.” Under section 101850, the hospital authority is “a government entity
separate and apart from the couaty, and shall not be considered to be an agency, division, or department
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of the county.” (Health & Safety Code, § 101850(j).)
12. In February 1998, the Alameda County Board of Supervisors enacted an ordinance that _
established the hospital authority to be known as the “Alameda County Medical Center” (ACMC).
/ 13. Subsequently, pursuant to section 101850, the County and the ACMC entered jntoa
Master Contract and associated agreements (County Services Agreement and Facilities Lease) for the
transfer of the health system to ACMC.
14. The Master Contract was first executed in 1998 (approved by the Board of Supervisors on
June 23, 1998) and amended in 2000 (approved by the Board of Supervisors on November 28, 2000).
15. The official transfer of the hospitals to the new hospital authority occurred on June 23,
1998, but became effective as of 12:01 a.m. on July 1, 1998. (Master Contract sec. 4.7.) (hereafter “the
Transfer”).
16. On January 1, 2013, ACMC became AHS and AHS assumed all rights that ACMC had.
under the Master Agreement. AHS has operated continuously since that time as the COUNTY’s
integrated public health provider, fulfilling the COUNTY’s responsibilities under California Welfare and
Institutions Code section 17000, and otherwise providing healthcare to the indigent. In this Complaint,
“AHS?” is inclusive of the predecessor agency known as ACMC.
17, AHS is informed and believes, and on that basis alleges, that at the time of the Transfer in
July 1998 there were no pension system unfunded liabilities. : Therefore, the Master Contract did not ,
specifically address the allocation of any unfunded liabilities that could arise in the future. Accordingly,
the allocation of unfunded liabilities must be ascertained from the enabling legislation and sections of the
Master Contract that address transfer of liabilities.
18. The enabling legislation, Health & Safety Code, § 101850, and the Master Contract
support AHS’s position that it did not take on any responsibility for unfunded pension liabilities for
COUNTY employees attributable to the pre-Transfer period. The state legislation provided that the new
hospital authority (AHS) would take only the liabilities as specifically set forth in the Master Contract.
The Master Contract provided that AHS would be exclusively dedicated to its mission to provide
healthcare to the needy, established a specific date of transfer to AHS of existing hospital system
liabilities, operations and employees, and did not include any other obligations for the period before the
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VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INIUNCTIVE RELIEF, BREACH
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Transfer. As stated above, there were no pension system unfunded liabilities at the time of the Transfer
and therefore none were transferred to AHS, : ,
19. The Master Contract and the enabling legislation, when read together against the backdrop |
ofall the circumstances at the time, are properly interpreted to require the COUNTY to be responsible
for the unfunded liabilities as follows. After the transfer of personnel from the COUNTY to ACMC,
there were three groups of employees with respect to ACERA: (1) COUNTY employees who never
worked for AHS (‘Group 1”), (2) employees who worked for the COUNTY and then transferred under
the Master Contract to work as employees of AHS (“Group 2”), and (3) employees hired after the
transfer who worked only for AHS (“Group 3”). It is the contention of AHS that the COUNTY is
responsible for the unfunded liabilities for Group 1, that the COUNTY is responsible for the unfunded
liabilities for Group 2 for the time period these employees worked for the COUNTY, and that AHS is
responsible only for the unfunded liabilities for Group 2 for the time these employees worked for AHS,
and for Group 3. : .
GENESIS OF THE PRESENT DISPUTE
20. Before the Transfer, the COUNTY was a Participating Employer in ACERA. As stated
above, ACERA is the retirement pension plan for COUNTY employees, as well as certain other agency
employees within the COUNTY. ACERA was formed and operates pursuant to the County Employees .
Retirement Law of 1937 (“CERL” or the “’37 Act”), California Government Code sections 31450-
31898, ,
21. After the Transfer date, AHS contractually committed to became a Participating Employer :
in ACERA.
22.” Under the terms of CERL, there are different contributions required of employees and
employers in order to fund the pension benefits upon retirement. Employee contribution rates are.
generally based on: a member’s age at entry into the system; benefit tier level; and membership
classification (i.e. miscellaneous or safety). Employer contributions are set based on annual actuarial
studies. Employer contributions may fall into two categories: (a) normal costs, and (b) unfunded costs. ,
23. Normal costs are calculated by making assumptions about various factors, such as life
expectancy and rates of return on fund investments. Normal cost paid by the employer, along with
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employee contributions, are intended to cover the entire cost of the pension benefit assuming no changes
to the assumptions.
24. If the assumptions underlying normal costs prove inaccurate, unfunded liabilities can
arise. For example, if retirees live longer than estimated, if market returns are lower than projected, or if
a benefit enhancement is adopted through labor negotiations, then normal costs together with employee
contributions can fall short of the actual cost of the pension benefit.
25. Again, at the time of the Transfer, there were no unfunded liabilities affecting ACERA,
and its constituent members and there was not any obligation or anticipation that AHS would be asked to
or required to fund future unfunded liabilities attributable to the Pre-Transfer time period.
26. Since the Transfer, ACERA unfunded liabilities have grown to the point where as of
December 31, 2017, ACERA faced approximately $2.15 billion in Unfunded Actuarial Accrued Liability |
(“UAAL”). As of December 31, 2017, ACERA was only 76% funded.
27. Indetermining how to allocate UAAL to its general tier Participating Employers, ACERA
utilizes a methodology of assigning a single percentage of an employer’s annual payroll (“Percentage of
Payroll”), and subject to certain adjustments.
28. Asa result of using a Percentage of Payroll methodology in order to calculate required
employer contributions, UAAL is allocated and paid for based on an employer’s payroll, and not on the’
actual cost attributable to the employer for its pension liabilities. Thus, ACERA does not determine
actual costs based on unfunded liabilities attributable to the employer’s own workforce.
29. Since 1998, AHS's payroll has grown much faster than that of other participating
employers in ACERA. This is due to a variety of factors. For example, AHS has added facilities; the
healthcare industry has become more complex, resulting in AHS needing to increase the number of
skilled staff; the rate of turnover within AHS is higher than that of other Participating Employers; and the
competitive Bay Area healthcare market requires AHS to pay higher salaries in order to remain
competitive with other healthcare providers in the region, and to meet its core mission to provide quality
health care to the residents of Aiameda County, including its indigent and disabled population.
30. | AHS engaged its own actuaries — Altman and Cronin — to study whether the methodology
utilized by ACERA to calculate employer contributions was reasonable and fair. Altman and Cronin
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reported to AHS that the Percentage of Payroll Methodology likely caused costs that are not attributable
to AHS employees to be paid by AHS. This has the effect of subsidizing other participating employers —
especially the COUNTY which is the largest participating employer in ACERA — to the detriment of
AHS and its overall health care mission. Altman and Cronin concluded that further analysis was
warranted to determine whether AHS was paying costs not attributable to AHS employees.
31. ACERA engages Segal and Company (“Segal”) for ACERA actuarial services.
32. In 2015, Altman and Cronin requested that Segal provide certain data as part of AHS’s
effort to analyze and verify whether AHS was being charged for a disproportionate share of UAAL. In
December 2015, Segal’s calculations revealed that a change from a Percentage of Payroll Method to a
Percentage of Liability method would result in a reduction of about $12.4 Million in AHS annual
employer contributions (as of December 31, 2014). Based on this initial study, AHS sought further
information from ‘ACERA and its actuaries to confirm the costs of unfunded liabilities attributable to
AHS employees.
33. At various times after December 2015, AHS approached ACERA to request that it
conduct an appropriate further study, and to consider a change in its costing methodology, to rectify the
disproportionate and inequitable outcome caused by its use of the Percentage of Payroll Method, AHS
agreed to pay for the study. But ACERA and its Board have consistently refused to take any action,
citing various pretextual reasons, when their true reason has been to act consistently with the desire of the
COUNTY, which would suffer increased costs if ACERA utilized a fair methodology that allocates
actual unfunded liabilities to Participating Employers.
34, On December 4, 2017, AHS sent ACERA a letter demanding that ACERA “revise, to
make fair and equitable, ACERA’s method for determining AHS’s annual employer contribution ,
attributable to urifunded liability.” (“Demand Letter” (Dee. 4, 2017) at p. 1.)
35. In the Demand Letter, AHS demonstrated that, based on data supplied by ACERA’s own
actuaries, “a change from the Percentage of Payroll method to the Percentage of Liability method based
on AHS’s separately determined unfunded liability would result in a reduction of about $12.4 million in
AHS annual employer contributions.”
36. In that Demand Letter, AHS also demonstrated that other retirement systems had rejected
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the Percentage of Payroll method used by ACERA to allocate unfunded liabilities among Participating
Employers and had instead adopted the Percentage of Liability method urged by AHS. These retirement
systems stated that they did so in the interests of equity and fairness among Participating Employers.
37. For example, CalPERS historically maintained “risk pools” of smaller employers and
allocated unfunded actuarial accrued liability based on the Percentage of Payroll method. But in 2014,
based on “equity,” the CalPERS Board voted to change to the Percentage of Liability method. The Staff
Report in support of the Board Resolution recommended that the Board: “Allocate the pool’s unfunded
accrued liability proportionately to each individual plan based on each plan’s total liability instead of
plan payroll” and “Collect employer contributions toward the unfunded accrued liability and Side Fund
for plans participating in a risk pool as dollar amount instead of contribution rates expressed as a
percentage of payroll.” (CalPERS Finance & Administration Committee, Staff Memorandum, Agenda
Item 5a, May 20, 2014).
38. The resulting Board Resolution stated: “It is the policy of the Board to ensure equity
within the risk pools by allocating the pools unfunded accrued liability in a manner that treats each
employer fairly and that maintains benefit security for the members of the System while minimizing
substantial variations in employer contribution rates.” (CalPERS Board Resolution No. ACT-14-01,
May 21, 2014, Section A.). CalPERS’ actions demonstrate that a retirement board, once on notice of an
inequitable allocation of unfunded liability, must take action to address the resulting unfairness to an :
employer.
39. Similarly,.in 2009, Contra:Costa County Employees’ Retirement System (CCCERA) also.
adopted “depooling” to assign unfunded liabilities by employer. The CCCERA Comprehensive Annual
Financial Report (CAF! R) for the year ended December 31, 2011, reported that: “In October 2009, the
Retirement Board depooled CCCERA’s assets, actuarial accrued liability (AAL), and normal cost both
by tier and employer for determining employer contribution rates. This Board action yielded 12 separate
‘cost groups by employer, with the exception of smaller employers (those with less than 50 active
members) who continue to be pooled with the applicable County tier.” As part of its deliberations prior
to this change, the CCCERA Board determined that the proposed change was needed because the
COUNTY (as the largest employer in the system) “was paying more of the cost.” As described by
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CCCERA actuary Segal Consulting: “Since the depooling action taken by the Board effective December
31, 2009, employers that are now in their own cost group have their UAAL determined separately in the
valuation.” Again, the action by CCCERA demonstrates that allocation by employer is an accepted and
superior method of assigning unfunded liabilities when there are disparities among employers in
responsibility for unfunded liabilities.
COUNTY INFLUENCE OVER ACERA
40. In response to the demands of AHS, both before and after AHS sent its formal Demand
Letter, ACERA invited and acquiesced to COUNTY influence over ACERA’s consideration of AHS’s
demands. At ACERA’s invitation, COUNTY officials communicated with ACERA staff and Board
members, including a number of ex parte communications, and actively took steps to dissuade ACERA
from changing the methodology — because the current methodology clearly favors the COUNTY and any
change would likely cost the COUNTY money. AHS obtained the following documents in response to a
Public Records Act request made to ACERA. Notably, even though AHS made a similar Public Records
Act request to the COUNTY, the COUNTY did not produce many of these documents.
41. On September 1, 2017, ACERA Executive Director Nelsen sent an e-mail to ACERA
Actuarial Committee member Ophelia Basgal, a former COUNTY employee, attaching a draft staff
memo to the ACERA Actuarial Committee, and asked if he could share the memo with “Susan” —
presumably the COUNTY Administrator,
42.. In an e-mail dated September 7, 2017, the ACERA Executive Director sent the COUNTY
Administrator an advance copy of a staff memorandum to the ACERA Actuarial Committee that
recommended ACERA not proceed with the study or change in methodology requested by AHS. The e-
mail suggested that the COUNTY send someone to the ACERA Actuarial Committee meeting to confirm
that the COUNTY disagreed with AHS about the pre-separation liability for unfunded liabilities. In
contrast, on information and belief, at that point the Director had only sent AHS a copy of the staff
memorandum without the recommendation. :
43. In response to the ACERA Executive Director’s September 7, 2017 e-mail, on
September 8, 2017, the COUNTY Administrator sent back an e-mail expressing gratitude for the staff
recommendation and stating “we appreciate the time and effort that has been expended based on
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AHS staff request for consideration of a methodology change that could reduce its share of |
liabilities and shift cost to other employers, primarily the County.” This exchange reveals the true
reason for ACERA’s refusal to ‘change methodology and debunks ACERA’s other rationales. On
October 6, 2017, the COUNTY Administrator sent Nelsen and others an e-mail stating she will send a
letter opposing the AHS proposals and “We trust that you and your team will support the County
position ....”
44. Ina letter dated October 5, 2017, from the COUNTY to ACERA’s Executive Director, the
COUNTY urged that the ACERA staff recommendation be followed and that no study of actual AHS
liabilities should be done. :
45. On October 9, 2017 Dale Amaral, a Commander in the Alameda County Sheriff's Office
and an ACERA Board member, sent an e-mail directly to the COUNTY Administrator, asking: “So, :
does the Board of ACERA need to take any action?” This e-mail demonstrates that COUNTY affiliated
ACERA Board members were taking direction from the COUNTY. .
46. — Inresponse, the COUNTY Administrator sent a response to ACERA Board member.
Amaral, with a copy to COUNTY Board of Supervisor Keith Carson, who is also an ACERA Board
member, and to Ophelia Basgal, ACERA Board member, stating: “Trustee Amaral, The County is
recommending that the ACERA Actuarial Committee and subsequently full ACERA BOT accept your
staff's recommendation to NOT proceed with a further study as requested by AHS. Please let us know if
you have questions or need additional information.” The e-mail produced by ACERA to AHS contains a
blacked out portion, possibly indicating that part of it was redacted.
- 47. On or around January 16, 2018, the COUNTY Board President Wilma Chan sent a letter
to ACERA urging it to reject AHS’s demand. The letter indicated that “the COUNTY” supports the
recommendations made by ACERA staff to deny AHS’s request. Although AHS’s attorneys issued a
Public Records Act request for COUNTY authorization for this letter, the COUNTY has not produced
any records of formal action taken by the COUNTY Board that would create a lawful COUNTY policy
in “support” of ACERA staff recommendation. This letter reflects a longstanding relationship where the
COUNTY dominates ACERA, with COUNTY affiliated Board members all tacitly agreeing to work to
convince ACERA to minimize COUNTY costs, regardless of the discriminatory and unfair impact on
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ACERA BOARD DECISION
48. On January 18, 2018, in an 8-0 vote, the ACERA Board denied “AHS’s request for a
further actuarial study” and denied “AHS’s request that the board direct the ACERA actuary to change
ACERA’s long-standing methodology for determining UAAL obligations to be paid by ACERA’s
Participating Employers.” (Board Minutes (Jan. 18, 2018) at p. 14.)
49. Based on information and belief, AHS alleges that ACERA is dominated by the
COUNTY, and cedes to the will of the COUNTY, even if the effect is to discriminate unfairly against
other Participating Employers. Of nine votes on the ACERA Board, a majority of five are held by
officers or employees of the COUNTY: a COUNTY supervisor, the COUNTY treasurer tax collector,
and three COUNTY employees.
50. The reasons given for ACERA’s denial are pretextual or are without statutory authority,
For example, according to memoranda written to the ACERA Board by ACERA CEO David Nelsen and
Chief Counsel Kathy Mount, ACERA’s “fiduciary rationale for pooling is to create a more stable UAAL
rate for all employers, and thus to have fewer swings in the UAAL rate, and thus volatility in
contribution amounts due from year to year.” (Memorandum from Kathy Mount to ACERA Board of
Trustees, dated January 18, 2018 (“Kathy Mount Memo”) at p. 4, Memorandum from David Nelson to
ACERA Board of Trustees, dated January 18; 2018 (“David Nelsen Memo”) at p. 1-2.) This reason is
pretextual, The true reason was to not to reduce “swings in the UAAL rate” for all employers but rather
to reduce the costs for the COUNTY by having AHS subsidize the unfunded liabilities for the COUNTY _
and other Participating Employers. ~
51. Also, according to the ACERA CEO, in a memo to the ACERA Actuarial Committee, the
ACERA Board.was entitled to decide this matter based on whether it had “an appetite for change.” This
factor is an invitation to arbitrary and capricious action that has no foundation in the constitutional and
statutory standards that govern ACERA’s decisions.
52. . Moreover, AHS recently learned that ACERA is considering adopting special policies for:
reassessing employer contributions for those employers with declining payrolls and for withdrawing
employers, based on a-Percentage of Liability method, This provides evidence that the justification for
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VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF Goop FAITH AND FAIR DEALING, AND VIOLATION OF PuBLIC RECORDS ACT
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refusing any further study into the percentage of liability method is arbitrary.
53. . ACERA has acted, and is continuing to act consistently with the COUNTY’s desires.
Again, the COUNTY is motivated to oppose any change in the costing methodology because it will
negatively impact the COUNTY. ACERA and its Board are dominated and influenced by the COUNTY
to the extent that ACERA is not acting ina manner that is fair and equitable to all Participating
Employers, but rather in a manner consistent with COUNTY objectives and discriminatory toward AHS.
54. AHS, its employees and the residents of Alameda County are being harmed and will
continue to be harmed by the patently unfair costing methodology adopted by ACERA in the interest of
the COUNTY. 1
GOVERNMENT CLAIMS ACT
55. AHS is not required to comply with the Government Claims Act with respect to its action
against ACERA or against the COUNTY, in that section 905(i) of the California Government Code
exempts claims brought by a “local public entity.” Moreover, both ACERA and the COUNTY have
confirmed that they have not adopted any requirement, applicable to their agencies, that would require
the filing of a government claim. ,
FIRST CAUSE OF ACTION
(WRIT OF MANDATE, CODE OF CIVIL PROCEDURE SECTION 1085, BROUGHT BY AHS
AND REDMOND AGAINST ACERA AND THE ACERA BOARD)
56. AHS and Redmond incorporate the allegations of paragraphs 1 to 55, as if fully set forth
herein. - ,
57... Article XVI, section 17 of:the California constitution provides that retirement boards like
ACERA “shall have plenary authority and fiduciary responsibility for investment of moneys and - .
administration of the system” but subject to limiting factors. Retirement boards “shall discharge their °
duties with respect to the system solely in the interest of, and for the exclusive purposes of providing
benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying
reasonable expenses of administering the'system.” (Jd:, § 17, subd. (b).) Further, members of a
retirement board “shall discharge their duties with respect to the system with the care, skill, prudence, .
and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and. ]
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VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT
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familiar with these matters would use in the conduct of an enterprise of a like character and with like
aims.” (Article XVI, sec. 17, (c).)
58. ACERA’s own regulations for its Board members state that: “We are committed to
carrying out our mission through a competent professional and open decision-making process.” A Board
member: “Resists pressures to make investment decisions for political, social or other reasons that are
inconsistent with fiduciary standards;” “Understands what information is to be kept confidential and
maintains that confidentiality;” and “Avoids conflicts of interest and appearance of impropriety.”
59. | ACERA and its Board have violated their duties. In exercising their authority, retirement
boards do not have the power to abuse their discretion by the invocation of rationales that are pretextual,
that are based on favoritism of one Participating Employer over the other, or that are not grounded in _
law. ACERA and its Board have done so and thus acted in breach of the prudent person standard
required for all of their actions. ACERA and its Board also have breached their internal code of conduct
by failing to engage in an open decision-making process, making decisions for political reasons, failing
to keep information confidential and not appreciating the conflict of interest involved in their handling of
AHS’s requests. ‘
60. | ACERA and its Board are in breach of their duty of loyalty to Redmond and other the
ACERA members who are employees of AHS by imposing costs on AHS for pension unfunded
liabilities that are not attributable to AHS employees and doing so in order to benefit the COUNTY at the
expense of AHS. ACERA’s actions have caused the redirection of funds that could otherwise be used for
AHS employee salaries, employee benefits, upgraded equipment and working conditions, and other
elements that would benefit AHS employees. In the past few years, AHS employees have been
negatively impacted by AHS’s need, as a result of budget constraints, to reduce the number of employee
positions, leave open positions unfilled, and take other actions in regard to staffing. AHS faces a
projected deficit-in fiscal year 2020 of approximately $80 million that creates the serious probability that
there will be a reduction in the AHS workforce and/or a reduction or freeze in levels of compensation.
This budget deficit must be addressed in the next sixty to ninety days. : ,
61. | ACERA and its Board are in breach of their duty to minimize employer contributions by
rejecting AHS’s demand for further study to determine which employees and retirees are attributable to
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT
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AHS and which are attributable to the COUNTY (for which AHS agreed to pay), and by rejecting AHS’s
demand that ACERA adopt a adopt a fair and equitable method for determining the responsibility of
Participating Employers for unfunded pension liabilities attributable to their workforce. ACERA has
done-so in order to benefit the COUNTY at the expense of AHS.
62.. AHS and Redmond petition this Court for a writ of mandate requiring ACERA and its
Board to properly exercise their discretion, without pretext or resort to considerations that are improper
or without legal basis, in considering AHS’s demand that ACERA adopt a fair and equitable method for
determining the responsibility of Participating Employers for unfunded pension liabilities attributable to
their workforce.
63. | AHS and Redmond further petition this Court for a writ of mandate directing ACERA and
its Board to conduct further study to determine which employees and retirees are attributable to AHS and
which are attributable to the COUNTY (again, for which AHS agreed to pay), and to determine the
amount of AHS’s actual unfunded pension liability for these employees.
64, AHS and Redmond have no plain or adequate remedy at law and the issuance of a writ of
mandamus will be an effective remedy.
65. . AHS and Redmond are beneficially interested in ACERA and its Board’s proper exercise _
of their duties and responsibilities and the public interest will suffer if ACERA and its Board are not
directed to do so. AHS has been injured by ACERA’s refusal to modify the methodology used to
determine the employer contribution rate in the amount of approximately $12.4 million related to the
year ending December 2014, and amounts for prior years, and that injury is ongoing as ACERA has
refused to modify its methodology for subsequent years. AHS faces a budget deficit of approximately
$80 million for the fiscal year 2020. This deficit must be addressed in the next sixty to ninety days.
Accordingly, Redmond and other AHS employees face potential harm from ACERA’s actions in that the
current budget deficit, caused in part by ACERA’s continued overcharging of AHS, creates a genuine
threat of workforce and/or compensation reductions, There are over 2,400 AHS employees enrolled as
members of ACERA, including doctors, nurses and other essential personnel. Finally, even apart from
the interests of AHS’s employees, the public interest will suffer from ACERA’s actions because AHS’s
mission to provide health care to the indigent population of Alameda County is compromised by
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT
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ACERA’s continuing overcharging of AHS.
66. As a direct and proximate result of ACERA and its Board’s actions, AHS and Redmond
have and will continue to suffer irreparable harm.
"SECOND CAUSE OF ACTION
(DECLARATORY RELIEF, BROUGHT BY AHS AND REDMOND AGAINST ACERA AND
. THE ACERA BOARD) .
67. . AHS and Redmond incorporate the allegations of paragraphs 1 to 66, as if fully set forth
herein.
68. AHS and Redmond are interested parties under a contract or written instrument and so are
entitled to declaratory relief pursuant to CCP § 1060. .
69. _ There is an actual, present and continuing controversy between AHS and ACERA in that
ACERA and its Board are refusing to properly consider AHS’s demand for reconsideration of the |
methodology by which ACERA attributes pension system unfunded liabilities to Participating
Employers. ,
70. | AHS and Redmond contend that ACERA and its Board have given pretextual and invalid
reasons for their decision to reject AHS’s demand and ACERA and its Board deny that assertion. ,
71. AHS and Redmond have no other plain or speedy remedy at law, and therefore seek a
declaration of the Court resolving the dispute by finding that ACERA and its Board have failed to
properly exercise their discretion, without pretext of resort to considerations that are improper or without
legal basis, in considering AHS’s demand that ACERA adopt a fair and equitable method for
determining the responsibility of Participating Employers for unfunded pension liabilities attributable to
their workforce.
THIRD CAUSE OF ACTION
(DECLARATORY RELIEF, CODE OF CIVIL PROCEDURE 1060, BROUGHT BY AHS
AGAINST COUNTY OF ALAMEDA)
72... AHS incorporates the allegations of paragraphs 1 to 71, as if fully set forth herein.
73. AHS isan interested party under a contract or written instrument and so are entitled to
declaratory relief pursuant to CCP § 1060.
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT
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74. There is an actual and continuing controversy between AHS and the COUNTY over the
COUNTY ’s responsibility for the unfunded pension liabilities of employees and retirees who worked for
the COUNTY prior to the 1998 Transfer of COUNTY medical facilities to AHS.
75. Representativés of AHS have met with representatives of the COUNTY on a number of
occasions, over several years, in an attempt to resolve this dispute, but no resolution has been reached.
The COUNTY refuses to support any change in AHS’s costing methodology (or even to have an
actuarial study performed to analyze the issue), and various officials have indicated that the COUNTY’s |
formal position is that AHS should make no changes to its methodology. Based on this history, further
discussions would be futile.
76. This controversy has a direct and continuing impact on AHS based on ACERA’s
invocation of this controversy as a reason for refusing to consider further actuarial study or a change in
its methodology in determining the contributions of Participating Employers towards pension system
unfunded liabilities.
. 71. The ACERA staff report, which recommended that ACERA not conduct a study of the
unfunded liabilities, stated: “From an administrative point of view, the fundamental question of how to
allocate employees to each employer must be resolved before the data, even if it can be obtained, will
have any significance.” (David Nelsen Memo, page 4.)
78, The report further stated: “Staff continues to believe that the comprehensive study
requested by AHS will not provide dispositive information without resolution of the dispute between the
County and AHS about responsibility for the employees in question.” (Zbid.)
79. ACERA’s General Counsel stated that AHS and the COUNTY “disagree on . . . which
entity is responsible for the funding of ‘ACERA benefits due to current and former AHS employees who -
served AHS prior to 1998, and how such a liability would be determined if ACERA’s Board were to
change its longstanding ‘percentage of payroll’ based approach to the determination.” (Kathy Mount
Memo at page 2.)
80. At the timie of the Transfer, the pension fund administered by ACERA had no unfunded
pension liabilities. Accordingly, at the time of the Transfer, AHS did not take on any responsibility for
unfunded pension liabilities for COUNTY employees. The Master Contract and the enabling legislation,
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‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT
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when read together against the backdrop of all the circumstances at the time, are properly interpreted to
require the COUNTY to be responsible for the unfunded liabilities as follows.
81. After the transfer of personnel from the COUNTY. to ACMC, there were three groups of
employees with respect to ACERA: (1) COUNTY employees who never worked for AHS (“Group 1”),
(2) employees who worked for the COUNTY and then transferred under the Master Contract to work as
employees of AHS (“Group 2”), and (3) employees hired after the transfer who worked only for AHS
(“Group 3”). It is the contention of AHS that the COUNTY is responsible for the unfunded liabilities for
Group 1, that the COUNTY is responsible for the unfunded liabilities for Group 2 for the time period
these employees worked for the COUNTY, and that AHS is responsible only for the unfunded liabilities
for Group 2 for the time they worked for AHS and for Group 3.
82. The-following provisions of the state implementing legislation and the Master Contract,
among others, support the position of AHS that it did not take on any responsibility for unfunded pension
liabilities for COUNTY employees for the pre-Transfer period. (1) The state implementing legislation
provides that AHS take on liabilities only “pursuant to the contract” (Gov. Code sec. 101850(k)(1)) and
“as specifically set forth in the contract” (Gov. Code sec. 101850(1)(2)), which demonstrates an intent
that AHS not be saddled with liabilities not known at the time and which relate to the prior operations of
the COUNTY; (2) the Master Contract provides that AHS is “strictly and exclusively” dedicated to
administration of the hospital facilities and “has as its mission the maintenance and improvement of the
health of Alameda County residents regardless of ability to pay,” which would be contrary to taking on
any obligations to COUNTY employees for the time period before the Transfer, (3) under sec. 4.2(a),
AHS only took responsibility for personnel that transferred to AHS and not for COUNTY employees :
who were already retired or did not transfer, (4) under sec. 4.2(c), COUNTY employees were transferred
to AHS pursuant to a personnel transition plan, which did not require AHS to take on any pre-Transfer :
pension liabilities attributable to them, 6) sec. 4.6(b) specifically prohibited the COUNTY from granting
employees increased compensation except under existing salary ordinances and MOUS, which shows an
intent not saddle AHS with any additional liabilities other than those existing at the time, and (6) under
sec. 6.11, the Master Contract must be interpreted “in a manner that, to the fullest extent possible, is fair
to both parties as it relates to the care of Indigents as defined under Section 1700 of the Welfare and
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VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH
OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RecorDs'ACT
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Institutions Code, and, to the extent possible, low income, uninsured and underinsured persons as
provided in this Master Contract.” This mandate requires that the Master Contract cannot be interpreted
to place on AHS costs that do not relate to its mission to provide quality health care to needy persons.
83. The COUNTY has relied on provisions in the Master Contract that state that the liabilities
of AHS “shall not be the obligations of County or the State of California” (sec. 4.5(c)), but the
obligations referred to do not relate to the pre-Transfer time period
Preview
Attomeys at Law RENNE PuBLic Law Grour® Cm NY AW Aw NY HY Nn yon ND ee ee ee ee ee BNRRRRBRBREBS Ce taBr ore Ss BL Msttom ‘MN MWe oe 208 li wim _ 22128468 _ ARTHUR A. HARTINGER (SBN Bsa | ahartinger@publiclawy Osu FKAMEDA COUNTY LINDA M. ROSS (SBN 133874) lross@publiclawgroup.com MAR 2 9 2019 RYAN MCGINLEY-STEMPEL (SBN 296182) mmeginleystempel@publiclawgroup.com CLERK OF TH, 5S} RENNE PUBLIC LAW GROUP® By . 350 Sansome Street, Suite 300 San Francisco, California 94104 Telephone: (415) 848-7200 Facsimile: (415) 848-7230 ER Attorneys for Plaintiffs/Petitioners ALAMEDA HEALTH SYSTEM and ANTHONY | REDMOND SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF ALAMEDA = CPF -19-516795 ALAMEDA HEALTH SYSTEM and ANTHONY | Case No. RG19006178 REDMOND, EXEMPT FROM FEES (GOV. CODE §6103) Plaintiffs/Petitioners, : . FIRST AMENDED VERIFIED PETITION ve FOR WRIT OF MANDATE AND/OR OTHER . APPROPRIATE RELIEF; VERIFIED ALAMEDA COUNTY EMPLOYEES’ COMPLAINT FOR DECLARATORY RETIREMENT ASSOCIATION; BOARD OF RELIEF, BREACH OF CONTRACT, RETIREMENT OF THE ALAMEDA COUNTY BREACH OF THE COVENANT OF GOOD. EMPLOYEES’ RETIREMENT ASSOCIATION; FAITH AND FAIR DEALING, AND DAVID NELSEN, in his Official Capacity as VIOLATION OF PUBLIC RECORDS ACT Executive Director of the Alameda County Employees’ Retirement Association, ALAMEDA DEMAND FOR JURY TRIAL COUNTY, and DOES 1 — 100, Defendants/Respondents, Petitioners ALAMEDA HEALTH SYSTEM (“AHS”) and ANTHONY REDMOND (“Redmond”) (collectively “Plaintiffs/Petitioners”) hereby petition this Court for a writ of mandate pursuant to California Code of Civil Procedure section 1085, for declaratory and injunctive relief, and for damages, against Respondents and Defendants ‘ALAMEDA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION (“ACERA”), the BOARD OF RETIREMENT OF THE ALAMEDA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION (the “ACERA Board” or the “Board”), DAVID NELSEN, in his Official Capacity as Executive Director of the Alameda County Employees’ Retirement Association, and for declaratory and injunctive relief, and damages, against ALAMEDA COUNTY, and -1- ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC Law GRour® Attomeys at Law 0 we Nm 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DOES 1 - 100. INTRODUCTION 1. This Petition and Complaint (collectively “Complaint”) stems from ACERA systematically overcharging AHS for its fair and equitable share of unfunded pension liabilities attributable to AHS’s employees and retirees. ACERA has been overcharging AHS for years, including an estimated $12.4 million for the 12/31/2014 valuation year, and annually thereafter, thereby causing AHS to unfairly subsidize the unfinded pension liabilities of other employers who are members of ACERA (known as “Participating Employers”). Despite AHS’s request that ACERA rectify its costing methodology for unfunded liabilities, ACERA steadfastly refuses to do anything, claiming that it has: unfettered and plenary discretion to set the Participating Employer contribution rates, despite the fact that the methodology is inequitable an outright capricious. In part, ACERA is acting at the behest of ALAMEDA COUNTY (“COUNTY” or “ALAMEDA”, the largest plan sponsor and who dominates ACERA’s Board of Directors, ACERA has acquiesced to the COUNTY’s interests to ensure the COUNTY is subsidized by AHS, and the COUNTY’s costs are artificially lowered. As justification for this discrimination against AHS, ACERA has offered false and pretextual reasons — all of which constitute evidence that its refusal.to seriously consider and implement a fair costing methodology is arbitrary and capricious and in viclation of its constitutional and statutory duties. 2. Through this actior, AHS seeks to compel ACERA to establish a fair and equitable costing methodology going forward that does not require AHS to subsidize other Participating Employers. Through this action, AHS seeks a declaration as to the responsibility of the COUNTY for the unfunded liabilities attributable to employees for their work for the COUNTY before the COUNTY transferred operation of the hospital system to AHS: 3. Through this actior, AHS also seeks to compel the COUNTY to produce documents requested by AHS pursuant to the California Public Records Act (“CPRA”) before filing this action. The - COUNTY did not comply with the CPRA, and has never fully complied with its responsibility to produce documents for inspection and duplication. Accordingly, AHS’s efforts to gather information as part of its due diligence in advance of litigation has been thwarted. Therefore, this action also seeks an order compelling the COUNTY to comply with AHS’s earlier requests made pursuant to the CPRA, and -2- ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PusLic Law Grour® Attorneys at Law Oo eo NY A WF WN yoN RYN RN NY Be Be ee ee ee ee RBNRBRR BRE 8S SF eB A ADE YH HE for reasonable associated attorneys’ fees. To the extent that additional information becomes available pursuant to AHS’s CPRA requests, AHS will seek to amend this Complaint to include any appropriate or necessary additional allegations to support its causes of action. THE PARTIES 4, Defendant/Responcent ACERA is, and all times herein mentioned was, a public agency: located in the County of Alameda. As more fully described herein, ACERA is the retirement pension plan for COUNTY employees, as well as other public agencies in the COUNTY who join as Participating Employers. 5. Defendant/Respondent ACERA Board is, and all times herein mentioned was, the board of a public agency located in the County of Alameda and charged with administering ACERA. 6. Defendant/Respondent COUNTY OF ALAMEDA is, and all times herein mentioned was, a public agency and a political sutdivision of the State of California. Alameda is located in and comprises the County of Alameda. 7. Plaintiff/Petitioner AHS is, and all times herein mentioned was, a public agency located in the County of Alameda. AHS is an integrated public health care system of five hospitals and four wellness centers with over 800 beds and 1,000 physicians. AHS’s mission, in part, is to fulfill the County’s legal obligation to provide meaningful, quality and necessary medical care to the COUNTY’s most vulnerable citizens pursuant to Welfare and Institutions Code section 17000, which provides in pertinent part: “Every county and every city and county shall relieve and support all incompetent, poor, indigent persons, and ‘those incapzcitated by age, disease, or accident, lawfully resident therein, when such persons are not supported and relieved by their relatives or friends, by their own means, or by state hospitals or other state or private institutions.” 8. Plaintiff/Petitioner Anthony Redmond (“Redmond”) is an employee of AHS and a member of ACERA. Redmond regularly makes employee contributions to ACERA to fund his retirement. ACERA owes Redmond and other AHS employees who are members of ACERA a duty of loyalty to administer the plan in a manner that is fair and not prejudicial to the interests of AHS and its employees. Redmond sues in his individual capacity in that ACERA’s costing methodology (as more fully described herein) has created tangible harm to him (as well as other AHS employees) by negatively 3. ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 1 213099.1Attorneys at Law RENNE PUBLIC Law Grour® Co wo YN DA We WN b= Ss 13 impacting AHS’s budget and resources which could otherwise be devoted to fund personnel-related costs. and working conditions critical te AHS’s mission, AHS has a projected budget deficit of approximately $80 million.for the fiscal year 2020. This budget deficit must be addressed in the next sixty to ninety days. Based on this budget deficit, AHS employees face the serious probability of work force reductions and/or compensation reductions. : 9. The true names ard capacities of the Defendants/Respondents named herein as Does 1 — 100, inclusive, are unknown to AHS, who therefore sues such Defendants/Respondents by fictitious names. At all times mentioned herein, Defendants/Respondents, and each of them, inclusive of DOES 1 through 100, were authorized and empowered by each other to act, and did so act, as agents of each other, and all of the things hereir. alleged to have been done by them were done in the capacity of such agency. Upon information and telief, all Defendants/Respondents are responsible in some manner for the events described herein and are liable to Plaintiffs for the damages they have incurred. AHS will seek leave of court to amend this Complaint to allege the true names and capacities of such Defendants/Respondents, together with any necessary additional charging allegations, at such time as the | same have been fully ascertained. : / _ VENUE 10. All parties are located in the County of Alameda, and all acts and omissions at issue occurred in the.County of Alameda. But ‘AHS, ACERA and the COUNTY are public agencies located in ; Alameda County, and on information and belief, the staff serving the Superior Court of the County of Alameda are members of ACERA. Accordingly, under Code of Civil Procedure section 394, and related | authority, AHS will seek transfer to a neutral county or seek the appointment of a Superior Court Judge from a neutral jurisdiction to preside over this case. , FACTUAL ALLEGATIONS / MASTER CONTRACT 11. In 1996, the state legislature enacted Health and Safety Code section 101850, which authorized the COUNTY to transfer the governance of the Alameda County Health System to an independent “hospital authority.” Under section 101850, the hospital authority is “a government entity separate and apart from the couaty, and shall not be considered to be an agency, division, or department -4- ‘ VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INSUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC Law Grour® Attomeys at Law Co oe YN A WwW e WN 10 of the county.” (Health & Safety Code, § 101850(j).) 12. In February 1998, the Alameda County Board of Supervisors enacted an ordinance that _ established the hospital authority to be known as the “Alameda County Medical Center” (ACMC). / 13. Subsequently, pursuant to section 101850, the County and the ACMC entered jntoa Master Contract and associated agreements (County Services Agreement and Facilities Lease) for the transfer of the health system to ACMC. 14. The Master Contract was first executed in 1998 (approved by the Board of Supervisors on June 23, 1998) and amended in 2000 (approved by the Board of Supervisors on November 28, 2000). 15. The official transfer of the hospitals to the new hospital authority occurred on June 23, 1998, but became effective as of 12:01 a.m. on July 1, 1998. (Master Contract sec. 4.7.) (hereafter “the Transfer”). 16. On January 1, 2013, ACMC became AHS and AHS assumed all rights that ACMC had. under the Master Agreement. AHS has operated continuously since that time as the COUNTY’s integrated public health provider, fulfilling the COUNTY’s responsibilities under California Welfare and Institutions Code section 17000, and otherwise providing healthcare to the indigent. In this Complaint, “AHS?” is inclusive of the predecessor agency known as ACMC. 17, AHS is informed and believes, and on that basis alleges, that at the time of the Transfer in July 1998 there were no pension system unfunded liabilities. : Therefore, the Master Contract did not , specifically address the allocation of any unfunded liabilities that could arise in the future. Accordingly, the allocation of unfunded liabilities must be ascertained from the enabling legislation and sections of the Master Contract that address transfer of liabilities. 18. The enabling legislation, Health & Safety Code, § 101850, and the Master Contract support AHS’s position that it did not take on any responsibility for unfunded pension liabilities for COUNTY employees attributable to the pre-Transfer period. The state legislation provided that the new hospital authority (AHS) would take only the liabilities as specifically set forth in the Master Contract. The Master Contract provided that AHS would be exclusively dedicated to its mission to provide healthcare to the needy, established a specific date of transfer to AHS of existing hospital system liabilities, operations and employees, and did not include any other obligations for the period before the -5- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INIUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PusLic Law GRour® Attorneys at Law oO me ND HH FF WN eee Be ee OU FB ww N + Oo 16 Transfer. As stated above, there were no pension system unfunded liabilities at the time of the Transfer and therefore none were transferred to AHS, : , 19. The Master Contract and the enabling legislation, when read together against the backdrop | ofall the circumstances at the time, are properly interpreted to require the COUNTY to be responsible for the unfunded liabilities as follows. After the transfer of personnel from the COUNTY to ACMC, there were three groups of employees with respect to ACERA: (1) COUNTY employees who never worked for AHS (‘Group 1”), (2) employees who worked for the COUNTY and then transferred under the Master Contract to work as employees of AHS (“Group 2”), and (3) employees hired after the transfer who worked only for AHS (“Group 3”). It is the contention of AHS that the COUNTY is responsible for the unfunded liabilities for Group 1, that the COUNTY is responsible for the unfunded liabilities for Group 2 for the time period these employees worked for the COUNTY, and that AHS is responsible only for the unfunded liabilities for Group 2 for the time these employees worked for AHS, and for Group 3. : . GENESIS OF THE PRESENT DISPUTE 20. Before the Transfer, the COUNTY was a Participating Employer in ACERA. As stated above, ACERA is the retirement pension plan for COUNTY employees, as well as certain other agency employees within the COUNTY. ACERA was formed and operates pursuant to the County Employees . Retirement Law of 1937 (“CERL” or the “’37 Act”), California Government Code sections 31450- 31898, , 21. After the Transfer date, AHS contractually committed to became a Participating Employer : in ACERA. 22.” Under the terms of CERL, there are different contributions required of employees and employers in order to fund the pension benefits upon retirement. Employee contribution rates are. generally based on: a member’s age at entry into the system; benefit tier level; and membership classification (i.e. miscellaneous or safety). Employer contributions are set based on annual actuarial studies. Employer contributions may fall into two categories: (a) normal costs, and (b) unfunded costs. , 23. Normal costs are calculated by making assumptions about various factors, such as life expectancy and rates of return on fund investments. Normal cost paid by the employer, along with -6- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC Law GRour® Attomeys at Law ~ Coo IN A wW B® WwW DN employee contributions, are intended to cover the entire cost of the pension benefit assuming no changes to the assumptions. 24. If the assumptions underlying normal costs prove inaccurate, unfunded liabilities can arise. For example, if retirees live longer than estimated, if market returns are lower than projected, or if a benefit enhancement is adopted through labor negotiations, then normal costs together with employee contributions can fall short of the actual cost of the pension benefit. 25. Again, at the time of the Transfer, there were no unfunded liabilities affecting ACERA, and its constituent members and there was not any obligation or anticipation that AHS would be asked to or required to fund future unfunded liabilities attributable to the Pre-Transfer time period. 26. Since the Transfer, ACERA unfunded liabilities have grown to the point where as of December 31, 2017, ACERA faced approximately $2.15 billion in Unfunded Actuarial Accrued Liability | (“UAAL”). As of December 31, 2017, ACERA was only 76% funded. 27. Indetermining how to allocate UAAL to its general tier Participating Employers, ACERA utilizes a methodology of assigning a single percentage of an employer’s annual payroll (“Percentage of Payroll”), and subject to certain adjustments. 28. Asa result of using a Percentage of Payroll methodology in order to calculate required employer contributions, UAAL is allocated and paid for based on an employer’s payroll, and not on the’ actual cost attributable to the employer for its pension liabilities. Thus, ACERA does not determine actual costs based on unfunded liabilities attributable to the employer’s own workforce. 29. Since 1998, AHS's payroll has grown much faster than that of other participating employers in ACERA. This is due to a variety of factors. For example, AHS has added facilities; the healthcare industry has become more complex, resulting in AHS needing to increase the number of skilled staff; the rate of turnover within AHS is higher than that of other Participating Employers; and the competitive Bay Area healthcare market requires AHS to pay higher salaries in order to remain competitive with other healthcare providers in the region, and to meet its core mission to provide quality health care to the residents of Aiameda County, including its indigent and disabled population. 30. | AHS engaged its own actuaries — Altman and Cronin — to study whether the methodology utilized by ACERA to calculate employer contributions was reasonable and fair. Altman and Cronin -7- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COWENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC LAW GRouP® Attomeys at Law wo mo YN DA HW ® YW ON Rowe NY NR YN NNN SF Fe Be Be Ee eB Re ew se & FA BF ov SF © wa A wW ER YN SY DO reported to AHS that the Percentage of Payroll Methodology likely caused costs that are not attributable to AHS employees to be paid by AHS. This has the effect of subsidizing other participating employers — especially the COUNTY which is the largest participating employer in ACERA — to the detriment of AHS and its overall health care mission. Altman and Cronin concluded that further analysis was warranted to determine whether AHS was paying costs not attributable to AHS employees. 31. ACERA engages Segal and Company (“Segal”) for ACERA actuarial services. 32. In 2015, Altman and Cronin requested that Segal provide certain data as part of AHS’s effort to analyze and verify whether AHS was being charged for a disproportionate share of UAAL. In December 2015, Segal’s calculations revealed that a change from a Percentage of Payroll Method to a Percentage of Liability method would result in a reduction of about $12.4 Million in AHS annual employer contributions (as of December 31, 2014). Based on this initial study, AHS sought further information from ‘ACERA and its actuaries to confirm the costs of unfunded liabilities attributable to AHS employees. 33. At various times after December 2015, AHS approached ACERA to request that it conduct an appropriate further study, and to consider a change in its costing methodology, to rectify the disproportionate and inequitable outcome caused by its use of the Percentage of Payroll Method, AHS agreed to pay for the study. But ACERA and its Board have consistently refused to take any action, citing various pretextual reasons, when their true reason has been to act consistently with the desire of the COUNTY, which would suffer increased costs if ACERA utilized a fair methodology that allocates actual unfunded liabilities to Participating Employers. 34, On December 4, 2017, AHS sent ACERA a letter demanding that ACERA “revise, to make fair and equitable, ACERA’s method for determining AHS’s annual employer contribution , attributable to urifunded liability.” (“Demand Letter” (Dee. 4, 2017) at p. 1.) 35. In the Demand Letter, AHS demonstrated that, based on data supplied by ACERA’s own actuaries, “a change from the Percentage of Payroll method to the Percentage of Liability method based on AHS’s separately determined unfunded liability would result in a reduction of about $12.4 million in AHS annual employer contributions.” 36. In that Demand Letter, AHS also demonstrated that other retirement systems had rejected 8. ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC Law Grour® Attorneys at Law Cm a AW PWN HY nN Ny - N N yo — ee BRRRRRBRPE BB Ge AAD RE SEES the Percentage of Payroll method used by ACERA to allocate unfunded liabilities among Participating Employers and had instead adopted the Percentage of Liability method urged by AHS. These retirement systems stated that they did so in the interests of equity and fairness among Participating Employers. 37. For example, CalPERS historically maintained “risk pools” of smaller employers and allocated unfunded actuarial accrued liability based on the Percentage of Payroll method. But in 2014, based on “equity,” the CalPERS Board voted to change to the Percentage of Liability method. The Staff Report in support of the Board Resolution recommended that the Board: “Allocate the pool’s unfunded accrued liability proportionately to each individual plan based on each plan’s total liability instead of plan payroll” and “Collect employer contributions toward the unfunded accrued liability and Side Fund for plans participating in a risk pool as dollar amount instead of contribution rates expressed as a percentage of payroll.” (CalPERS Finance & Administration Committee, Staff Memorandum, Agenda Item 5a, May 20, 2014). 38. The resulting Board Resolution stated: “It is the policy of the Board to ensure equity within the risk pools by allocating the pools unfunded accrued liability in a manner that treats each employer fairly and that maintains benefit security for the members of the System while minimizing substantial variations in employer contribution rates.” (CalPERS Board Resolution No. ACT-14-01, May 21, 2014, Section A.). CalPERS’ actions demonstrate that a retirement board, once on notice of an inequitable allocation of unfunded liability, must take action to address the resulting unfairness to an : employer. 39. Similarly,.in 2009, Contra:Costa County Employees’ Retirement System (CCCERA) also. adopted “depooling” to assign unfunded liabilities by employer. The CCCERA Comprehensive Annual Financial Report (CAF! R) for the year ended December 31, 2011, reported that: “In October 2009, the Retirement Board depooled CCCERA’s assets, actuarial accrued liability (AAL), and normal cost both by tier and employer for determining employer contribution rates. This Board action yielded 12 separate ‘cost groups by employer, with the exception of smaller employers (those with less than 50 active members) who continue to be pooled with the applicable County tier.” As part of its deliberations prior to this change, the CCCERA Board determined that the proposed change was needed because the COUNTY (as the largest employer in the system) “was paying more of the cost.” As described by -9- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC LAW GROUP® ‘Attorneys at Law Oo Oo YN DA HW F&F WN HY moe NR NY NN NY DF Fe ee Se Be Be Se Se ® &§anw FB Bn | Ss eo wna DA Hw FY NY SO CCCERA actuary Segal Consulting: “Since the depooling action taken by the Board effective December 31, 2009, employers that are now in their own cost group have their UAAL determined separately in the valuation.” Again, the action by CCCERA demonstrates that allocation by employer is an accepted and superior method of assigning unfunded liabilities when there are disparities among employers in responsibility for unfunded liabilities. COUNTY INFLUENCE OVER ACERA 40. In response to the demands of AHS, both before and after AHS sent its formal Demand Letter, ACERA invited and acquiesced to COUNTY influence over ACERA’s consideration of AHS’s demands. At ACERA’s invitation, COUNTY officials communicated with ACERA staff and Board members, including a number of ex parte communications, and actively took steps to dissuade ACERA from changing the methodology — because the current methodology clearly favors the COUNTY and any change would likely cost the COUNTY money. AHS obtained the following documents in response to a Public Records Act request made to ACERA. Notably, even though AHS made a similar Public Records Act request to the COUNTY, the COUNTY did not produce many of these documents. 41. On September 1, 2017, ACERA Executive Director Nelsen sent an e-mail to ACERA Actuarial Committee member Ophelia Basgal, a former COUNTY employee, attaching a draft staff memo to the ACERA Actuarial Committee, and asked if he could share the memo with “Susan” — presumably the COUNTY Administrator, 42.. In an e-mail dated September 7, 2017, the ACERA Executive Director sent the COUNTY Administrator an advance copy of a staff memorandum to the ACERA Actuarial Committee that recommended ACERA not proceed with the study or change in methodology requested by AHS. The e- mail suggested that the COUNTY send someone to the ACERA Actuarial Committee meeting to confirm that the COUNTY disagreed with AHS about the pre-separation liability for unfunded liabilities. In contrast, on information and belief, at that point the Director had only sent AHS a copy of the staff memorandum without the recommendation. : 43. In response to the ACERA Executive Director’s September 7, 2017 e-mail, on September 8, 2017, the COUNTY Administrator sent back an e-mail expressing gratitude for the staff recommendation and stating “we appreciate the time and effort that has been expended based on -10- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECcoRDS ACT 213099.1RENNE PUBLIC Law GRouP® Attomeys at Law oe I DW ® WN mw oR YY NY NR NNR Be ee Be ee ee ee & Saw 8 & Ne £& 5S 6 we Ia A HW SF YN = Oo AHS staff request for consideration of a methodology change that could reduce its share of | liabilities and shift cost to other employers, primarily the County.” This exchange reveals the true reason for ACERA’s refusal to ‘change methodology and debunks ACERA’s other rationales. On October 6, 2017, the COUNTY Administrator sent Nelsen and others an e-mail stating she will send a letter opposing the AHS proposals and “We trust that you and your team will support the County position ....” 44. Ina letter dated October 5, 2017, from the COUNTY to ACERA’s Executive Director, the COUNTY urged that the ACERA staff recommendation be followed and that no study of actual AHS liabilities should be done. : 45. On October 9, 2017 Dale Amaral, a Commander in the Alameda County Sheriff's Office and an ACERA Board member, sent an e-mail directly to the COUNTY Administrator, asking: “So, : does the Board of ACERA need to take any action?” This e-mail demonstrates that COUNTY affiliated ACERA Board members were taking direction from the COUNTY. . 46. — Inresponse, the COUNTY Administrator sent a response to ACERA Board member. Amaral, with a copy to COUNTY Board of Supervisor Keith Carson, who is also an ACERA Board member, and to Ophelia Basgal, ACERA Board member, stating: “Trustee Amaral, The County is recommending that the ACERA Actuarial Committee and subsequently full ACERA BOT accept your staff's recommendation to NOT proceed with a further study as requested by AHS. Please let us know if you have questions or need additional information.” The e-mail produced by ACERA to AHS contains a blacked out portion, possibly indicating that part of it was redacted. - 47. On or around January 16, 2018, the COUNTY Board President Wilma Chan sent a letter to ACERA urging it to reject AHS’s demand. The letter indicated that “the COUNTY” supports the recommendations made by ACERA staff to deny AHS’s request. Although AHS’s attorneys issued a Public Records Act request for COUNTY authorization for this letter, the COUNTY has not produced any records of formal action taken by the COUNTY Board that would create a lawful COUNTY policy in “support” of ACERA staff recommendation. This letter reflects a longstanding relationship where the COUNTY dominates ACERA, with COUNTY affiliated Board members all tacitly agreeing to work to convince ACERA to minimize COUNTY costs, regardless of the discriminatory and unfair impact on -11- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1 .RENNE PusLic Law Grour® Attomeys at Law om a A WwW PF WN eee A BW NR | So 16 ACERA BOARD DECISION 48. On January 18, 2018, in an 8-0 vote, the ACERA Board denied “AHS’s request for a further actuarial study” and denied “AHS’s request that the board direct the ACERA actuary to change ACERA’s long-standing methodology for determining UAAL obligations to be paid by ACERA’s Participating Employers.” (Board Minutes (Jan. 18, 2018) at p. 14.) 49. Based on information and belief, AHS alleges that ACERA is dominated by the COUNTY, and cedes to the will of the COUNTY, even if the effect is to discriminate unfairly against other Participating Employers. Of nine votes on the ACERA Board, a majority of five are held by officers or employees of the COUNTY: a COUNTY supervisor, the COUNTY treasurer tax collector, and three COUNTY employees. 50. The reasons given for ACERA’s denial are pretextual or are without statutory authority, For example, according to memoranda written to the ACERA Board by ACERA CEO David Nelsen and Chief Counsel Kathy Mount, ACERA’s “fiduciary rationale for pooling is to create a more stable UAAL rate for all employers, and thus to have fewer swings in the UAAL rate, and thus volatility in contribution amounts due from year to year.” (Memorandum from Kathy Mount to ACERA Board of Trustees, dated January 18, 2018 (“Kathy Mount Memo”) at p. 4, Memorandum from David Nelson to ACERA Board of Trustees, dated January 18; 2018 (“David Nelsen Memo”) at p. 1-2.) This reason is pretextual, The true reason was to not to reduce “swings in the UAAL rate” for all employers but rather to reduce the costs for the COUNTY by having AHS subsidize the unfunded liabilities for the COUNTY _ and other Participating Employers. ~ 51. Also, according to the ACERA CEO, in a memo to the ACERA Actuarial Committee, the ACERA Board.was entitled to decide this matter based on whether it had “an appetite for change.” This factor is an invitation to arbitrary and capricious action that has no foundation in the constitutional and statutory standards that govern ACERA’s decisions. 52. . Moreover, AHS recently learned that ACERA is considering adopting special policies for: reassessing employer contributions for those employers with declining payrolls and for withdrawing employers, based on a-Percentage of Liability method, This provides evidence that the justification for -12- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goop FAITH AND FAIR DEALING, AND VIOLATION OF PuBLIC RECORDS ACT 213099.) :RENNE PUBLIC LAW Grour® Attorneys at Law wo Oo ra A WF WN 10 refusing any further study into the percentage of liability method is arbitrary. 53. . ACERA has acted, and is continuing to act consistently with the COUNTY’s desires. Again, the COUNTY is motivated to oppose any change in the costing methodology because it will negatively impact the COUNTY. ACERA and its Board are dominated and influenced by the COUNTY to the extent that ACERA is not acting ina manner that is fair and equitable to all Participating Employers, but rather in a manner consistent with COUNTY objectives and discriminatory toward AHS. 54. AHS, its employees and the residents of Alameda County are being harmed and will continue to be harmed by the patently unfair costing methodology adopted by ACERA in the interest of the COUNTY. 1 GOVERNMENT CLAIMS ACT 55. AHS is not required to comply with the Government Claims Act with respect to its action against ACERA or against the COUNTY, in that section 905(i) of the California Government Code exempts claims brought by a “local public entity.” Moreover, both ACERA and the COUNTY have confirmed that they have not adopted any requirement, applicable to their agencies, that would require the filing of a government claim. , FIRST CAUSE OF ACTION (WRIT OF MANDATE, CODE OF CIVIL PROCEDURE SECTION 1085, BROUGHT BY AHS AND REDMOND AGAINST ACERA AND THE ACERA BOARD) 56. AHS and Redmond incorporate the allegations of paragraphs 1 to 55, as if fully set forth herein. - , 57... Article XVI, section 17 of:the California constitution provides that retirement boards like ACERA “shall have plenary authority and fiduciary responsibility for investment of moneys and - . administration of the system” but subject to limiting factors. Retirement boards “shall discharge their ° duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the'system.” (Jd:, § 17, subd. (b).) Further, members of a retirement board “shall discharge their duties with respect to the system with the care, skill, prudence, . and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and. ] -13- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PusLic Law Group® Attorneys at Law oo I DA WwW B® WEN yon NY NM Y NN YN YD oe eee BRRRRBBRBS Fe ua aAE BRE S familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.” (Article XVI, sec. 17, (c).) 58. ACERA’s own regulations for its Board members state that: “We are committed to carrying out our mission through a competent professional and open decision-making process.” A Board member: “Resists pressures to make investment decisions for political, social or other reasons that are inconsistent with fiduciary standards;” “Understands what information is to be kept confidential and maintains that confidentiality;” and “Avoids conflicts of interest and appearance of impropriety.” 59. | ACERA and its Board have violated their duties. In exercising their authority, retirement boards do not have the power to abuse their discretion by the invocation of rationales that are pretextual, that are based on favoritism of one Participating Employer over the other, or that are not grounded in _ law. ACERA and its Board have done so and thus acted in breach of the prudent person standard required for all of their actions. ACERA and its Board also have breached their internal code of conduct by failing to engage in an open decision-making process, making decisions for political reasons, failing to keep information confidential and not appreciating the conflict of interest involved in their handling of AHS’s requests. ‘ 60. | ACERA and its Board are in breach of their duty of loyalty to Redmond and other the ACERA members who are employees of AHS by imposing costs on AHS for pension unfunded liabilities that are not attributable to AHS employees and doing so in order to benefit the COUNTY at the expense of AHS. ACERA’s actions have caused the redirection of funds that could otherwise be used for AHS employee salaries, employee benefits, upgraded equipment and working conditions, and other elements that would benefit AHS employees. In the past few years, AHS employees have been negatively impacted by AHS’s need, as a result of budget constraints, to reduce the number of employee positions, leave open positions unfilled, and take other actions in regard to staffing. AHS faces a projected deficit-in fiscal year 2020 of approximately $80 million that creates the serious probability that there will be a reduction in the AHS workforce and/or a reduction or freeze in levels of compensation. This budget deficit must be addressed in the next sixty to ninety days. : , 61. | ACERA and its Board are in breach of their duty to minimize employer contributions by rejecting AHS’s demand for further study to determine which employees and retirees are attributable to -14- ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 2130991 .‘RENNE PUBLIC Law Grour® Attorneys at Law 0 0 I DO WP WN yoy MWY YN N KN S&F ee em Re Re ee Oo UA BA PF BOYD §& FS oD OI DAH FW N HK SS AHS and which are attributable to the COUNTY (for which AHS agreed to pay), and by rejecting AHS’s demand that ACERA adopt a adopt a fair and equitable method for determining the responsibility of Participating Employers for unfunded pension liabilities attributable to their workforce. ACERA has done-so in order to benefit the COUNTY at the expense of AHS. 62.. AHS and Redmond petition this Court for a writ of mandate requiring ACERA and its Board to properly exercise their discretion, without pretext or resort to considerations that are improper or without legal basis, in considering AHS’s demand that ACERA adopt a fair and equitable method for determining the responsibility of Participating Employers for unfunded pension liabilities attributable to their workforce. 63. | AHS and Redmond further petition this Court for a writ of mandate directing ACERA and its Board to conduct further study to determine which employees and retirees are attributable to AHS and which are attributable to the COUNTY (again, for which AHS agreed to pay), and to determine the amount of AHS’s actual unfunded pension liability for these employees. 64, AHS and Redmond have no plain or adequate remedy at law and the issuance of a writ of mandamus will be an effective remedy. 65. . AHS and Redmond are beneficially interested in ACERA and its Board’s proper exercise _ of their duties and responsibilities and the public interest will suffer if ACERA and its Board are not directed to do so. AHS has been injured by ACERA’s refusal to modify the methodology used to determine the employer contribution rate in the amount of approximately $12.4 million related to the year ending December 2014, and amounts for prior years, and that injury is ongoing as ACERA has refused to modify its methodology for subsequent years. AHS faces a budget deficit of approximately $80 million for the fiscal year 2020. This deficit must be addressed in the next sixty to ninety days. Accordingly, Redmond and other AHS employees face potential harm from ACERA’s actions in that the current budget deficit, caused in part by ACERA’s continued overcharging of AHS, creates a genuine threat of workforce and/or compensation reductions, There are over 2,400 AHS employees enrolled as members of ACERA, including doctors, nurses and other essential personnel. Finally, even apart from the interests of AHS’s employees, the public interest will suffer from ACERA’s actions because AHS’s mission to provide health care to the indigent population of Alameda County is compromised by -15- ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099. .RENNE PUBLIC Law Grour® Attorneys at Law wo wo ND HW BR YW ON wow Ye NR YP NN NN Be Bee Be eB Re Re BRB S&B BBS | Ss ob we DA We YN YK ACERA’s continuing overcharging of AHS. 66. As a direct and proximate result of ACERA and its Board’s actions, AHS and Redmond have and will continue to suffer irreparable harm. "SECOND CAUSE OF ACTION (DECLARATORY RELIEF, BROUGHT BY AHS AND REDMOND AGAINST ACERA AND . THE ACERA BOARD) . 67. . AHS and Redmond incorporate the allegations of paragraphs 1 to 66, as if fully set forth herein. 68. AHS and Redmond are interested parties under a contract or written instrument and so are entitled to declaratory relief pursuant to CCP § 1060. . 69. _ There is an actual, present and continuing controversy between AHS and ACERA in that ACERA and its Board are refusing to properly consider AHS’s demand for reconsideration of the | methodology by which ACERA attributes pension system unfunded liabilities to Participating Employers. , 70. | AHS and Redmond contend that ACERA and its Board have given pretextual and invalid reasons for their decision to reject AHS’s demand and ACERA and its Board deny that assertion. , 71. AHS and Redmond have no other plain or speedy remedy at law, and therefore seek a declaration of the Court resolving the dispute by finding that ACERA and its Board have failed to properly exercise their discretion, without pretext of resort to considerations that are improper or without legal basis, in considering AHS’s demand that ACERA adopt a fair and equitable method for determining the responsibility of Participating Employers for unfunded pension liabilities attributable to their workforce. THIRD CAUSE OF ACTION (DECLARATORY RELIEF, CODE OF CIVIL PROCEDURE 1060, BROUGHT BY AHS AGAINST COUNTY OF ALAMEDA) 72... AHS incorporates the allegations of paragraphs 1 to 71, as if fully set forth herein. 73. AHS isan interested party under a contract or written instrument and so are entitled to declaratory relief pursuant to CCP § 1060. -16- ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1 :RENNE PUBLIC Law GRouP® Attorneys at Law wo a DA Ww B® WN RN MY NM YN NN DH ee ee RBS & GD BBB # 5S oO wea Aw ® YW NHK SO 74. There is an actual and continuing controversy between AHS and the COUNTY over the COUNTY ’s responsibility for the unfunded pension liabilities of employees and retirees who worked for the COUNTY prior to the 1998 Transfer of COUNTY medical facilities to AHS. 75. Representativés of AHS have met with representatives of the COUNTY on a number of occasions, over several years, in an attempt to resolve this dispute, but no resolution has been reached. The COUNTY refuses to support any change in AHS’s costing methodology (or even to have an actuarial study performed to analyze the issue), and various officials have indicated that the COUNTY’s | formal position is that AHS should make no changes to its methodology. Based on this history, further discussions would be futile. 76. This controversy has a direct and continuing impact on AHS based on ACERA’s invocation of this controversy as a reason for refusing to consider further actuarial study or a change in its methodology in determining the contributions of Participating Employers towards pension system unfunded liabilities. . 71. The ACERA staff report, which recommended that ACERA not conduct a study of the unfunded liabilities, stated: “From an administrative point of view, the fundamental question of how to allocate employees to each employer must be resolved before the data, even if it can be obtained, will have any significance.” (David Nelsen Memo, page 4.) 78, The report further stated: “Staff continues to believe that the comprehensive study requested by AHS will not provide dispositive information without resolution of the dispute between the County and AHS about responsibility for the employees in question.” (Zbid.) 79. ACERA’s General Counsel stated that AHS and the COUNTY “disagree on . . . which entity is responsible for the funding of ‘ACERA benefits due to current and former AHS employees who - served AHS prior to 1998, and how such a liability would be determined if ACERA’s Board were to change its longstanding ‘percentage of payroll’ based approach to the determination.” (Kathy Mount Memo at page 2.) 80. At the timie of the Transfer, the pension fund administered by ACERA had no unfunded pension liabilities. Accordingly, at the time of the Transfer, AHS did not take on any responsibility for unfunded pension liabilities for COUNTY employees. The Master Contract and the enabling legislation, -17- ‘VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RECORDS ACT 213099.1RENNE PUBLIC Law Grour® Attorneys at Law oO NY DAD WF YN RBM NR MY WRN ND ND Be ee ee ee Be Re & Yaad Gv fF SF © wea Awe YN OS when read together against the backdrop of all the circumstances at the time, are properly interpreted to require the COUNTY to be responsible for the unfunded liabilities as follows. 81. After the transfer of personnel from the COUNTY. to ACMC, there were three groups of employees with respect to ACERA: (1) COUNTY employees who never worked for AHS (“Group 1”), (2) employees who worked for the COUNTY and then transferred under the Master Contract to work as employees of AHS (“Group 2”), and (3) employees hired after the transfer who worked only for AHS (“Group 3”). It is the contention of AHS that the COUNTY is responsible for the unfunded liabilities for Group 1, that the COUNTY is responsible for the unfunded liabilities for Group 2 for the time period these employees worked for the COUNTY, and that AHS is responsible only for the unfunded liabilities for Group 2 for the time they worked for AHS and for Group 3. 82. The-following provisions of the state implementing legislation and the Master Contract, among others, support the position of AHS that it did not take on any responsibility for unfunded pension liabilities for COUNTY employees for the pre-Transfer period. (1) The state implementing legislation provides that AHS take on liabilities only “pursuant to the contract” (Gov. Code sec. 101850(k)(1)) and “as specifically set forth in the contract” (Gov. Code sec. 101850(1)(2)), which demonstrates an intent that AHS not be saddled with liabilities not known at the time and which relate to the prior operations of the COUNTY; (2) the Master Contract provides that AHS is “strictly and exclusively” dedicated to administration of the hospital facilities and “has as its mission the maintenance and improvement of the health of Alameda County residents regardless of ability to pay,” which would be contrary to taking on any obligations to COUNTY employees for the time period before the Transfer, (3) under sec. 4.2(a), AHS only took responsibility for personnel that transferred to AHS and not for COUNTY employees : who were already retired or did not transfer, (4) under sec. 4.2(c), COUNTY employees were transferred to AHS pursuant to a personnel transition plan, which did not require AHS to take on any pre-Transfer : pension liabilities attributable to them, 6) sec. 4.6(b) specifically prohibited the COUNTY from granting employees increased compensation except under existing salary ordinances and MOUS, which shows an intent not saddle AHS with any additional liabilities other than those existing at the time, and (6) under sec. 6.11, the Master Contract must be interpreted “in a manner that, to the fullest extent possible, is fair to both parties as it relates to the care of Indigents as defined under Section 1700 of the Welfare and =18- VERIFIED PETITION FOR WRIT OF MANDATE; VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, BREACH OF CONTRACT, BREACH OF THE COVENANT OF Goon FAITH AND FAIR DEALING, AND VIOLATION OF PUBLIC RecorDs'ACT 213099.1RENNE PuBLIc Law Grour® Attomeys at Law Institutions Code, and, to the extent possible, low income, uninsured and underinsured persons as provided in this Master Contract.” This mandate requires that the Master Contract cannot be interpreted to place on AHS costs that do not relate to its mission to provide quality health care to needy persons. 83. The COUNTY has relied on provisions in the Master Contract that state that the liabilities of AHS “shall not be the obligations of County or the State of California” (sec. 4.5(c)), but the obligations referred to do not relate to the pre-Transfer time period