Mun. Water Dist. of Orange Co. v. Bd. of Admin. of CalPERS

Filed 10/24/06 Mun. Water Dist. of Orange Co. v. Bd. of Admin. of CalPERS CA3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Corey S. Cramin, Judge. Affirmed.

Janet Morningstar for Plaintiff and Appellant.

Peter H. Mixon and Rory J. Coffey for Defendant and Respondent.

Samuels, Green, Steel & Adams, Philip W. Green and Scott R. Albrecht for Real Party in Interest.

* * *

Introduction

The Municipal Water District of Orange County (MWD-OC) appeals from the denial of its petition for a writ of mandate to correct an alleged error by the Board of Administration of the California Public Employees’ Retirement System (CalPERS). CalPERS permitted Hunter T. Cook, an individual who provided services to MWD-OC’s predecessor in interest, to purchase prior service credit for the period during which he was denoted by contract as an independent contractor, not an employee. Because independent contractors are excluded from membership in CalPERS, MWD-OC contends CalPERS’s action was prohibited.

In deciding whether an individual is eligible for membership, CalPERS has the authority by statute to determine the nature of an employment relationship and the right to receive benefits, subject to judicial review. (Metropolitan Water Dist. v. Superior Court (2004) 32 Cal.4th 491, 503-504.) In this case, CalPERS’s decision that Cook was an “employee” for some portion of his relationship with MWD-OC’s predecessor in interest and was therefore entitled to purchase prior service credit was supported by substantial evidence. We therefore affirm the trial court’s denial of the petition for a writ of mandate.

Statement of Facts

Cook began performing engineering services for the Coastal Municipal Water District (the District) in 1981, pursuant to contract. In August 1992, the District became a contracting agency of CalPERS. Cook became an employee of the District, effective August 1, 1992.

In 1993, Cook submitted a request to CalPERS to purchase credit for his prior service with the District. CalPERS informed Cook he could purchase 4.594 years of prior service credit in exchange for a payment of $80,200.85; Cook did so. Cook retired from the District effective January 31, 1998.

On January 17, 2001, the District was consolidated into MWD-OC. MWD-OC agreed to assume all of the District’s obligations and liabilities, including the obligations under the District’s contract with CalPERS.

Following an inquiry by MWD-OC, CalPERS advised MWD-OC that the previous determination Cook was eligible to purchase prior service credit remained unchanged. “[A] review of the Amendment In Its Entirety Of Professional Services Agreement Dated July 13, 1989, does indicate that Mr. Cook was serving as an employee of the Water District and would, therefore, be eligible for purchasing service credit for that time period. This determination was made by applying the Common Law Control Test, extracted from the State Administrator’s Handbook. The specific factors which indicate an employer/employee relationship are listed below. 1. The contract states that the District will utilize the services of Hunter T. Cook as General Manager of the District. 2. Services that are personally provided by Mr. Cook are in accordance with the policies established by the Board of Directors. 3. Arrangement for services established that an average of 60 hours of principal time and 5 hours of clerical time was anticipated for performance of the job. 4. Agreement could be terminated at any time by either party. 5. As General Manager, Mr. Cook is responsible directly to the Board of Directors.”

MWD-OC then requested CalPERS to correct its determination that Cook was an employee of the District before August 1, 1992. CalPERS responded that it had again reviewed the issue of Cook’s prior service credit, and had again concluded its determination was correct. “It remains the determination of this office that Mr. Cook was serving as an employee of the District rather than as an Independent Contractor. This would make Mr. Cook eligible for the purchase of prior service credit for the period of time served under contract prior to the August 1, 1992, date the District first contracted with the California Public Employees’ Retirement System (CalPERS).” MWD-OC filed a notice of appeal with CalPERS. The matter was submitted to an administrative law judge on documentary evidence and posthearing briefs.

The administrative law judge issued a proposed decision denying MWD-OC’s appeal, which CalPERS adopted. MWD-OC submitted a petition for reconsideration; CalPERS denied that petition.

MWD-OC then filed a petition for a writ of mandate, asking the trial court to direct CalPERS to vacate its decision denying MWD-OC’s request to correct Cook’s service credit determination. The trial court denied the petition, and MWD-OC timely appealed.

Discussion

“[O]n appeal from a judgment in an administrative mandate proceeding (Code Civ. Proc., § 1094.5), this court must determine whether the superior court’s findings are supported by substantial evidence and are correct on matters of law. [Citations.]” (Yellen v. Board of Medical Quality Assurance (1985) 174 Cal.App.3d 1040, 1058; see Fukuda v. City of Angels (1999) 20 Cal.4th 805, 824 [“Even when, as here, the trial court is required to review an administrative decision under the independent judgment standard of review, the standard of review on appeal of the trial court’s determination is the substantial evidence test”].)

MWD-OC identifies the issue on appeal as whether CalPERS erred by permitting an excluded independent contractor to purchase prior service credit -- an act prohibited by statute (Gov. Code, § 20300, subd. (b)) and by the constitutional ban against the gift of public funds (Cal. Const., art. IV, § 17). But the real issue, as we see it, is whether there was substantial evidence to support CalPERS’s finding that Cook was an employee of the District, despite Cook’s and the District’s reference to him as an independent contractor. CalPERS has the statutory authority to determine whether an individual is an employee. In this case, there was substantial evidence supporting CalPERS’s determination.

Before August 1, 1992, Cook was nominally an independent contractor performing services for the District under written contract. Independent contractors are excluded from membership in CalPERS. (Gov. Code, § 20300, subd. (b).) Neither CalPERS nor the trial court may allow a person excluded from membership to participate in CalPERS. (Overend v. Board of Administration (1991) 232 Cal.App.3d 166, 171.)

CalPERS, however, went beyond the title used by Cook and the District, and examined Cook’s duties for and relationship with the District. In doing so, CalPERS concluded the relationship between the District and Cook was that of an employer and employee. It is within CalPERS’s statutory authority to make such a determination. “The board shall determine who are employees and is the sole judge of the conditions under which persons may be admitted to and continue to receive benefits under this system.” (Gov. Code, § 20125.) “The right of any member to receive benefits . . . is in the first instance for CalPERS itself to decide, after hearing if necessary, when such benefits are sought.” (Metropolitan Water Dist. v. Superior Court, supra, 32 Cal.4th at p. 503.)

As CalPERS recognized, the key test in determining whether an individual is an employee or an independent contractor is the common law control-of-work test: “‘[T]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. . . .’ [Citations.]” (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350; see Metropolitan Water Dist. v. Superior Court, supra, 32 Cal.4th at pp. 500-501 [common law definition applies when undefined term “employee” is used in statute].)

When making the determination that Cook was an employee of the District for at least part of the period between 1981 and 1992 and therefore entitled to purchase prior service credit, CalPERS had before it Cook’s original 1981 proposal for engineering services, as approved by the District’s board of directors; three professional services agreements between the District and Cook (dated 1989, 1990, and 1992); a 1997 federal-state reference guide regarding determinations whether an individual is an employee or an independent contractor; and a precedential decision from CalPERS regarding the inapplicability of equitable estoppel to a situation where CalPERS errs in computing a retirement allowance, despite the significant detriment of the error to the retiree. Based on all of this information, CalPERS concluded that although Cook and the District continued to refer to Cook as an independent contractor, Cook’s relationship with the District was, in fact, that of employer and employee for the relevant time period. That factual determination was supported by substantial evidence. In independently reviewing CalPERS’s decision, the trial court had the same information before it. The trial court’s judgment, too, was supported by substantial evidence.

Disposition

The judgment is affirmed. Respondent shall recover its costs on appeal.

FYBEL, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

ARONSON, J.

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