Pension Voodoo: How Courts Render Constitutional Provisions Meaningless
Last week, California Attorney General candidate John Eastman made an exciting promise that, if elected, he would tackle the state’s crippling unfunded pension liability problem by considering a challenge on the constitutional validity of such pension contracts. Now, this comes as little surprise to me since, as a former student of and legal assistant to Eastman at Chapman Law, I have learned to look first at just such grounds for making legal challenges. What is exciting about the promise is not that it presents a novel approach to the problem. In fact, Orange County asserted this very argument against the Association of Orange County Deputy Sheriffs (“AOCDS”)—after paying for expensive legal analyses by several law firms the year before—in County of Orange v. AOCDS, Los Angeles Superior Court Case No. BC389758. Instead, what is exciting is the prospect of having an Attorney General that would care about the meaning of these provisions as well. In fact, as explained below, our state’s constitutional proscriptions against compensation for work already rendered have been gutted in part due to former attorney general opinions undermining the applicability of those proscriptions.
The California Constitution is quite clear that neither the Legislature nor any local government body may pay extra compensation for work already rendered. Article IV, section 17 provides:
The Legislature has no power to grant, or to authorize a city, county, or other public body to grant, extra compensation or extra allowance to a public officer, public employee, or contractor after service has been rendered or a contract has been entered into and performed in whole or in part, or to authorize the payment of a claim against the State or a city, county, or other public body under an agreement made without authority of law.
And Article XI, section 10 similarly provides:
A local government body may not grant extra compensation or extra allowance to a public officer, public employee, or contractor after service has been rendered or a contract has been entered into and performed in whole or in part, or pay a claim under an agreement made without authority of law.
Article IV, section 17 and Article XI, section 10 have their roots in contract law principles. These principles are straightforward: If you offer to give me a couple of blintzes to paint your fence, and I agree, I cannot quit halfway and demand you also give me a plate of corn muffins before I finish. This is the concept of pre-existing duty. That is, even if you agreed to give me the corn muffins just so you wouldn’t be left with a half-painted fence, I could never give you anything I wasn’t already bound to give you, since I already owed you a fully painted fence. If I wanted to enforce your promise to give me the corn muffins, I’d have to do something extra, like paint your chicken coop. The same thing happens if I’ve already completed the work. That is, once I finish the fence and collect my well-earned blintzes, I’ve got no business demanding the corn muffins as some kind of bonus.
California’s constitution simply takes these contract principles one step further: not only is an agreement invalid which purports to give more money for work already done or agreed upon, such an agreement is illegal. In other words, contract principles won’t stop you from giving me the plate of corn muffins—they just say that no judge could ever make you. But our constitution affirmatively forbids our state and local government from doling out free corn muffins.
With that in mind, we must next understand what sort of “compensation” pension benefits are. “Pension annuities * * * are in the nature of compensation for the services previously rendered for which full and adequate compensation was not received at the time of the rendition of such services. They are in effect pay withheld to induce long-continued and faithful services.” Kern v. City of Long Beach, 29 Cal. 2d 848, 852 (1947). That is, although pension is compensation paid “after service has been rendered,” it is not extra compensation made illegal under Article IV, section 17 or Article XI, section 10.
“Extra compensation is compensation over and above that fixed by contract for the work agreed to be done. It would appear in the legal or equitable sense, being in the nature of a gratuity.” Gordon H. Ball. Inc. v. State of California, 26 Cal. App. 3d 162. “He is not fully compensated upon receiving his salary payments because, in addition, he has then earned certain pensions benefits, the payment of which is to be made at a future date.” Miller v. State of California, 18 Cal. 3d 808, 816 (1977).
This concept is sensible enough: pensions are simply a payout of the portions that had been withheld from an employee’s paychecks.
However, subsequent case law developments rendered the concept muddled and unmoored from common sense. In Nelson v. City of Los Angeles, 21 Cal. App. 3d 916 (1972), the Second Appellate District relied on case law dating before the enactment of Article XI, section 10, and held that “pensionable status includes the right not only to pensions as they exist at the time retirement is granted but also to increases in pensions.” Why? Because “the right to future increases in pension benefits is inherent in pensionable status.”
Still not satisfied? Let’s try the next case to try to expand the reasoning behind why pensions should be excluded from the constitutional prohibition against extra compensation. Relying on Nelson 25 years later, the Third Appellate District in American River Fire Protection District v. Brennan, 58 Cal. App. 4th 20, 28 (1997) explained that
The rationale for this rule is “that an increase in pension benefits payable to a retired public employee or his widow on pensionable status is paid as the result of rights incident to that status and not as a matter of increased compensation or allowance.”
By now, you’re probably ready to throw your hands up. Courts don’t seem interested in providing any actual explanation for these holdings. This is judicial sleight of hand that is sometimes employed to reach a result without actually providing a rationale. In essence, both Nelson and American River held that, although pensions are compensation, extra pension benefits paid to retired public employees are not unconstitutional “extra compensation” because pension benefits are rights. Well, duh.
Besides, this proves too much. If an increase in pension benefits is not “extra compensation” because the pensionee has a “right” to that increase, this raises the question: what gave rise to that right? It was not based on the pensionee’s labor—if that were the case, there would be an ascertainable formula, probably in the pension statutes operative at the time of the pensionee’s employment, or in the memorandum of understanding. No, instead, the “right” is triggered by something wholly outside the scope of the pensionee’s labor, indeed, outside the scope of the relationship between the public employee and the public altogether. There is some kind of pension voodoo happening here.
Judicial voodoo is incredibly frustrating for lawyers who, after having been enticed at the promise of learning the “rationale for the rule,” are disappointed to find that the court fails to appreciate the difference between rationales and restatements of the rule. A restatement is all Nelson provided, and American River saw fit to simply give a restatement of Nelson. This makes for an unpersuasive judicial opinion and, accordingly, weak precedent.
Indeed, there is no judicial force behind such naked assertions. The process of issuing a judicial opinion does not create law apart from underlying substance. The rational discourse of judges is implicitly designed to facilitate the finding of “right reason.” Lord Bracton’s notion that the king is the law and is not under it was rejected in favor of a system in which man and his institutions are under law as expressed through right reason. Instead, as Lord Coke said, the king “is under God and the Law.” Neither the king nor our courts are our “gods on earth.” Thus, where a court makes no appeal to “right reason,” its opinions are so much sound and fury signifying nothing.
Of course, courts themselves impose this rule on members of the bar. “We treat a point not supported by reasoned argument and citations to authority as waived.” Cal West Nurseries, Inc. v. Superior Court, 129 Cal. App. 4th 1170, 1174 (2005) (citing Jones v. Superior Court, 26 Cal. App. 4th 92, 99 (1998)). “We need not consider an argument for which no authority is furnished.” Horowitz v. Noble, 79 Cal. App. 3d 120, 139 (1978); Dabney v. Dabney, 104 Cal. App. 4th 379 (2002). “Where a point is merely asserted by [appellant] without any argument of or authority for the proposition, it is deemed to be without foundation and requires no discussion by the reviewing court.” Atchley v. City of Fresno, 151 Cal. App. 3d 635, 647 (1984). If courts don’t buy assertions without a supporting rationale, why should anyone else?
Nonetheless, California’s courts have provided some helpful language for those who would challenge windfall pension benefits. “[A] public pension system is subject to the implied qualification that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.” Miller v. State of California, 18 Cal. 3d 808, 816 (1977) (quoting Wallace v. City of Fresno, 42 Cal. 2d 180, 183 (1954)).
In short, the law governing pension benefits is a paradigm of uncertainty. In granting the AOCDS’s motion for judgment on the pleadings in County of Orange v. AOCDS, the LA Superior Court relied on American River’s sweeping conclusion that section 10 of Article XI does not apply to pensions at all. That court did not see fit to look behind the superficial treatment of “pension” compensation as mystically separate from other compensation, over which a rich and articulate body of law exists (the subject of a follow-up post). Nor did the court find any trouble with the holding in Miller and Wallace that an “employee does not have a right to any fixed or definite benefits.” This has become an area of law where a decision might go whatever way the winds happen to be blowing. A scary prospect.