McGuigan v. City of San Deigo

Filed 9/25/08 McGuigan v. City of San Deigo CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Richard E. L. Strauss, Judge. Affirmed; motions to dismiss and to strike denied; motions for sanctions denied.

This appeal challenges a judgment by the superior court approving a class action settlement reached between a representative plaintiff, respondent William J. McGuigan, a retired city employee (Plaintiff), and the City of San Diego (defendant and respondent; "the City"), in one of several pension litigation cases about the soundness of the City's retirement system (the San Diego City Employees' Retirement System (SDCERS)). The appellants, (1) the San Diego Police Officers Association (SDPOA) and (2) approximately 1,600 individually named police department employees (the Aaron Objectors), were potential class members and objectors in the proceedings below (sometimes collectively referred to as Appellants). Appellants raise various objections to the judgment, including the adequacy of the underlying procedures used to certify the class for settlement purposes, and the monetary sufficiency of the settlement.

All of these objectors and Appellants are plaintiffs in their own rights in two federal civil rights actions that are also pension-based litigation, raising variations of the same arguments. (Aaron v. Aguirre, USDC Case No. 06 CV 1451JM (RBB); SDPOA v. United States District Court, USDC Case No. 05 CV 1581H (POR) (the federal actions)). Appellants objected in the trial court in this action to a clause in the settlement agreement that released certain claims, contending the clause was overbroad and might jeopardize their ability to continue to litigate those federal actions.^[1]

In June 2006, Plaintiff's negotiations with City officials resulted in a settlement on certain pension underfunding causes of action that he had brought on a representative basis, relating to the operation from 1996 to 2006 of SDCERS. As part of this settlement with the City, Plaintiff agreed to act as class representative for purposes of seeking approval and enforcement of a formalized settlement agreement, in which the City agreed to deposit monies in the retirement system, in a total amount of $173 million. (Code Civ. Proc.,  382; all further statutory references are to this code unless noted.) Beginning in August of 2006, Appellants appeared in numerous status hearings in the superior court, raising their objections to the proposed class settlement. After several months of negotiations, the settlement agreement was formalized and signed by both parties on September 6, releasing the settled claims (e.g., specified charter and municipal code violations that created an actuarially unsound fund). On the same date, an amended class action complaint was filed and an ex parte order issued to certify the proposed class for settlement purposes.

With the ongoing supervision of the trial court, in September 2006, Plaintiff and the City sent out notices to 18,006 potential class members of the proposed approval of the settlement, a procedure for filing objections, and an upcoming fairness hearing date of October 16. (Cal. Rules of Court,^[2]rule 3.769, formerly rule 1859.) Numerous additional hearings took place from October 30 to December 12, 2006, at which the fairness of the settlement continued to be discussed.^[3]

After the superior court, as part of the fairness hearing procedures, first requested and then required counsel for the parties, including Appellants, to meet and confer on a number of occasions in October through December 6, 2006, about any mutually acceptable modifications to the settlement agreement's release provision, they attempted to do so. No such final resolution was achieved, and at a hearing in November of 2006, counsel for Appellants suggested that a proposed judgment be prepared, in an effort to accommodate their objections to the settlement agreement's release provision, in preparation for the next hearing, set for December 12, 2006.

At the beginning of December 2006, Plaintiff and the City prepared and circulated a proposed stipulated judgment that requested that the court issue findings on the proper scope of the release, since the parties had not been able to agree on it. Appellants' counsel continued to discuss the matter with counsel for Plaintiff and the City, and on December 6, served papers about some remaining objections upon them, but without filing the objections in the trial court.

At the scheduled hearing of December 12, 2006, counsel for Appellants did not appear nor supply any explanation for not doing so at the time. The trial court inquired of counsel for Plaintiff and the City, who stated that they did not know why counsel was absent, and they believed all the objections had been resolved in the proposed judgment. The court then signed the judgment, including its interpretation of the release provision and its approval of the class settlement. Thereafter, Appellants filed a motion for attorney fees as prevailing parties.

Next, Appellants filed their notice of appeal of the judgment. They first contend the trial court denied them due process and otherwise erred in conducting the fairness hearings, by failing to indicate conclusively and in advance that the December 12, 2006 hearing, at which counsel for Appellants did not appear, would be the "final" fairness hearing, within the meaning of the rules of court. (Rule 3.769, formerly rule 1859.) Appellants also challenge the adequacy of the class representative and class counsel, mainly arguing that as a retired employee, Plaintiff does not adequately represent public safety unions' interests, and Appellants would prefer their own counsel.

The main theme of Appellants' arguments is that the settlement is not in their best interests, because the release provision in the settlement agreement was excessively broad and not actually limited to the "Pension Underfunding Claims" (as defined by Plaintiff's pleadings), such that it might erroneously be accorded collateral estoppel effect in the federal actions that were then pending. Appellants contend the settlement should have been disapproved because, as summarized by the trial court, they fear that "class members are being required to release all claims against the City for all of the City's legal liability relating to the entire unfunded liability of SDCERS, which is in excess of $1.3 billion, in exchange for payment to SDCERS of only $173 million, an amount which is inadequate and unfair."

In addition to the arguments on appeal, this court has been presented with motions to dismiss by each Respondent, on the grounds that Appellants lack standing to appeal as aggrieved parties, because the settlement agreement is actually beneficial to them, and in any case, Appellants waived any objections by failing to appear at the December 12 hearing. ( 902, 473.) We, as the merits panel, are also in receipt of motions for monetary sanctions by both Respondents, as well as a motion to strike, in which they claimed that this is a frivolous appeal and/or Appellants have violated several court rules without justification.

In reviewing this judgment, we examine the record of the proceedings in this case, including the lodged materials that were placed before the trial court and this court, describing several other related pension litigation matters in which Appellants have also participated. We evaluate the procedure utilized by the trial court in conducting the fairness hearings in light of applicable legal standards, including the rules of court, to determine if due process violations occurred. We also examine whether the trial court's certification of the "settlement class" represented an abuse of discretion. Further, we must determine if the trial court's interpretation of the release language in the settlement agreement was correct as a matter of law, as formalized in the judgment.

As we will explain, we conclude this appeal is not subject to dismissal on the grounds raised, because at least colorable arguments exist on Appellants' claims of denial of due process and legal error in interpreting the settlement agreement. However, on the merits, we will reject those arguments. We conclude that the trial court correctly applied the appropriate legal standards to the record before it, in conducting the hearings and in approving the settlement and class definition, and there was no abuse of discretion. Any procedural irregularities or ex parte conduct of the hearings did not result in any prejudice to Appellants, who were fully apprised of the proceedings. We affirm the judgment.

Regarding the Respondents' motions for sanctions, they are denied for reasons to be explained in part VI, post.

FACTUAL AND PROCEDURAL BACKGROUND

A. Background of Pension Litigation; This Settlement/Proposed Class

In 1996 and 2002, the City adopted certain manager's proposals known as MP I and MP II, with regard to providing certain budgeted amounts of employer contributions to City pension plans from 1996-2006. As alleged in this action, these City funding agreements seriously underfunded the plans, by failing to contribute the actuarially-determined amounts of employer contributions that were due to the retirement system during that period, in violation of former city charter provisions and former municipal code sections.

These same City funding agreements, MP I and MP II, have been the subject of several other lawsuits in state and federal courts, including those cited above. For example, in July 2004, the City settled a class action lawsuit known as Gleason v. San Diego (Super. Ct. San Diego County, 2003, No. GIC803779) (Gleason), that was filed in January 2003 and was based on similar pension underfunding claims brought by retired city employees. The settlement resulted in the City's payment of funds prospectively due to the pension plans for the years 2006-2008.

In August 2005, Appellant SDPOA filed its separate federal action referenced above, and Appellant Aaron did likewise in July 2006, in which they each made similar claims about pension underfunding, based upon civil rights claims and labor law arguments, such as violations of the applicable memoranda of understanding (MOU). SDPOA sought damages, declaratory and injunctive relief. (42 U.S.C.  1983.) The Aaron group (approximately 1,600 individual SDPOA members) alleged that the pension underfunding had violated their civil rights in numerous ways, as well as violating the Pension Protection Act of 1992.

In June 2005, Plaintiff McGuigan filed this complaint on a representative basis for retired city employees, alleging specific violations of the city charter, ordinances, and other theories regarding underfunding, including requests for damages. The City responded by filing a notice of several related pension litigation matters (the benefits cases) and seeking consolidation, which was denied. (See fn. 3, ante.)

As amended, this complaint seeks a judicial declaration that the City's specified prior annual employer contributions to SDCERS resulted in underfunding of SDCERS. The complaint seeks declaratory relief and a writ of mandate directing the City to pay the amount of the shortfall in its annual employer contributions from 1996 to 2006, to SDCERS, the trustee of all class members, with interest. In March 2005 and September 2006, two of many professional reports were prepared by financial experts and analyzed by Plaintiff's actuary, to estimate the shortfall in the City's contributions to the plans and related issues, such as the amount necessary to remedy the shortfall. Eight such reports were made available to the court and were considered during these proceedings, in support of the proposed settlement. Extensive discovery was conducted and discovery motions were noticed, and Plaintiff filed a motion for summary judgment and/or summary adjudication. The City opposed that motion and filed cross-motions.

After some hard-fought hearings on the summary judgment motions, and requests for discovery sanctions, Plaintiff, in his original representative capacity, engaged in settlement negotiations with the City, with the assistance of a mediator, the Honorable J. Lawrence Irving (Ret.). On June 8, 2006, those negotiations culminated in the signing of a "term sheet" by City officials, in which they agreed to contribute $173 million to the pension funds.^[4] By that time, from April to June 2006, City officials had already been discussing the idea of contributing $100 million from tobacco securitization funds, as a means of remedying some of the pension underfunding. According to a declaration by executive assistant city attorney Don McGrath, those prior discussions were not conclusive and the City did not decide to use those funds for pension reimbursement, until the June 8, 2006 settlement agreement was reached. According to Plaintiff, the City had no obligation to utilize those $100 million funds in this manner, until the June 8 settlement term sheet was executed.

It must be noted here that the parties have different positions about what this $100 million represents, as reflected in their arguments about whether past consideration was used for this portion of the settlement payment. That is, Appellants contend that this money was used to reimburse previous employee payroll deductions that were agreed to be made by employees (through City use of employee dedicated savings accounts) to strengthen the pension system. Respondents disagree, and seek to have that argument disregarded on appeal, contending the record citations given do not support Appellants' arguments.^[5] We will discuss those issues further in part V.B, post.

The City paid the $100 million derived from the tobacco agreement funds into the pension plans on June 21, 2006. It also agreed to prepare security agreements for the remaining $73 million ("the Special Additional Contribution"), to be paid over five years, in the form of deeds of trust on specified, available city-owned property. The formalized settlement agreement was signed by the mayor September 6, 2006.

As part of the settlement, Plaintiff agreed to act as class representative of the 18,000-some current and retired city employees enrolled in the pension system, for purposes of seeking approval and enforcement of the settlement requiring the deposit of these funds. On September 6, 2006, Plaintiff and the City obtained approval of the court to amend the complaint accordingly, and to give notice of the proposed class definition and a procedure for filing objections. The proposed class was defined as "All past, present and future San Diego City Employees' Retirement System ('SDCERS') members and beneficiaries, their spouses, children, heirs, successors and assigns, and the representatives of such individuals, including, but not limited to, each of the plaintiffs or claimants in the Pension Underfunding Claims (as defined in the parties' Settlement Agreement and Release (collectively, the 'Settlement Class')." This notice was sent to 18,006 potential class members in the first few weeks of September.^[6]

In the settlement agreement, the following description of the class claims to be released as part of the settlement is set forth, as pled by this representative plaintiff:

"Those claims are: (a) that the City violated former Charter section 143; (b) the City violated former Municipal Code section 24.0801; (c) that the City'spast practice of paying an employer contribution less than that recommended by the actuary employed by SDCERS rendered the pension fund actuarially unsound and thereby impaired the beneficiaries' contractual right to an actuarially sound pension fund; (d) for declaratory relief that the City underfunded the SDCERS pension system and must pay additional amounts, plus interest, to rectify such underfunding; and (e) for a peremptory writ of mandate directing the City to pay SDCERS the amount of the City's shortfall in employer contributions from 1996-2006 (collectively the 'Pension Underfunding Claims')."

Much of the dispute in this appeal centers upon the differences between Appellants' theories pursued in their federal actions (e.g., 42 U.S.C. 1983), and the above-summarized theories referred to as the "Pension Underfunding Claims." Briefly, Appellants are seeking to pursue their civil rights and labor law claims in the federal trial and appellate courts, without hindrance (e.g., collateral estoppel effect) by this judgment accepting the settlement and issuing relief in mandamus.^[7] On July 31, 2006, Appellants filed a "Notice of Divestiture" stating that they did not consider Plaintiff to be their representative in the pension litigation matters.

B. Hearing Set on Class Certification Issues; Type of Class; Objections

As outlined above, Plaintiff sought to implement the settlement agreement in September 2006, by requesting approval of class certification and amending the complaint. Appellants' attorneys had been notified of the settlement in June 2006, and they began to appear in court hearings in this matter August 4, 2006 through November 29, 2006. Twice, they sought temporary restraining orders from the federal district court in which their civil rights cases were pending that would have stayed the state court proceedings. Such orders were denied August 3 and September 22, 2006.

At this point, it is important to note that in the class certification portion of the proceedings, the superior court made findings in support of treatment of the class as a "non-opt-out" class in the style of a Federal Rule of Civil Procedure, rule 23(b)(2) class action. The court relied on Bell v. American Title Ins. Co. (1991) 226 Cal.App.3d 1589, 1605 (Bell), for the proposition that, "A rule 23(b)(2) class is appropriate where the 'party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole.' [Citation.]" The court based its approach upon findings that "[t]he City's funding of its public pension system has been in a manner 'generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole.' [Citation.]" Accordingly, notice was given to the potential class members without giving them an opportunity to opt out, to the extent their claims were the same as Plaintiff's, but with an opportunity to object to the sufficiency of the consideration the City had agreed to pay in settlement.

At the same ex parte hearing on September 6, 2006 in which the trial court accepted the amended complaint and a stipulation provisionally certifying the class action, for purposes of pursuing and formalizing the settlement, the court set a hearing date of October 16, 2006 for the fairness hearing on the settlement. In support of the proposed class certification and approval of the settlement agreement, Plaintiff and the City each filed points and authorities.

At the September 6 ex parte hearing, counsel for Plaintiff candidly explained to the court that he had already taken questions from interested parties about whether the settlement for $173 million actually represented a recovery of only eight cents on the dollar, when the total amount of the City's ongoing pension underfunding was taken into account. (Appellants' position is that over $1.3 billion was owed.) Counsel for Plaintiff explained to the court that his calculations showed that the settlement amount was reasonable for this type of public defined-benefit pension plan, when all the variables are taken into account, and it actually represented an amount greater than the actuaries were currently calculating was due for that period ($140-$159 million).^[8] Counsel for the City explained to the court that this action and settlement represented "only part of what the city is doing to redress the overall pension underfunding." She said this settlement was reached in compromise of this lawsuit, and there were other issues being addressed in other arenas. For example, the Qualified Objectors were simultaneously pursuing their "benefits cases," which also addressed the legality of MP I and II.

In response to the class notices mailed, Appellants filed notices September 28 and 29, stating that they objected to the proposed class settlement and sought an evidentiary hearing and opportunities to speak at the October 16 fairness hearing, on a special appearance basis. They also filed notices that they reserved their rights to return to federal district court to dispose of their federal claims. They filed hundreds of declarations from individual union members about how they did not want Plaintiff's attorney to represent them, and they also requested hundreds of individual inspections of case records at the office of Plaintiff's attorney. These Appellants represented about 10 percent of the proposed class.^[9]

Also in response to the receipt of class notice, specific objections were filed by the Qualified Objectors, other affected employees. (See fn. 1, ante.) They raised similar objections to the proposed class and settlement scope, which were ruled upon by the trial court in the judgment, as will be described later.

At the October 12 hearing in this case, Appellants' attorney characterized their federal claims as based on constitutional rights to a fully functioning, fully actuarially sound pension. (See fn. 7, ante.) The court discussed and postponed Appellants' request for further discovery, and addressed the distinctions between the federal claims Appellants were pursuing and the Plaintiff-authored claims to be released as part of this settlement. City Attorney Michael Aguirre explained the City's desired result of the release by outlining the history of the MP I and II, as follows:

"In 1996, the city agreed to pay into SDCRES budgeted rates, as opposed to actuarially determined rates. There is a schedule for that; we know exactly what the schedule is. Now, the experts have gone back and they have actually identified, using various theories, various ways to measure that, how much that all adds up to. [Plaintiff] did it. SDCERS has done it. So, from the city's point of view, if we don't get a release that gives us some benefit, there is no sense in entering into the agreement, at least at this stage. . . . [] . . . [] We want the fact that we agreed to a budgeted as opposed to actuarially formed rate, we want to be released from that. And the way we want to be released from that is by paying the amounts that the actuarial rate would have been had we paid at the time."

Later at the October 12 hearing, the court acknowledged that the release language as it appeared at that time included some "catchall" phrases, such as the release of matters concerning, relating to, or arising from the claims litigated by Plaintiff. The court urged all counsel to work to resolve the disputed issues about the scope of the release, to implement a fully negotiated settlement agreement, rather than a court-imposed order.

C. Fairness Hearings; Continuing Negotiations re: Release and Judgment

At the scheduled fairness hearing on October 16, Plaintiff argued that the matter should be resolved expeditiously, because the recovery would not include any interest until judgment was entered. The matter was continued until October 30 for further negotiation. On October 17, 2006, Appellants made a request to intervene in the action, which was denied on the basis that they were already participating as potential affected class members, who had been given notice and whose attorneys were attempting to protect their interests under the objections procedure allowed.

From October 16 until November 29, 2006, Plaintiff and City representatives and the various objectors appeared at a number of hearings before the superior court to discuss the ramifications of the release clause of the settlement agreement. These will be described in more detail in the discussion portion of this opinion, since the sequence of events is key to Appellants' claims that they were prejudicially denied due process in the fairness hearing procedure. Here, we note only that at the direction of the superior court, from October 16 to early December 2006, the parties continued to negotiate about the Appellants' objections to the scope of the release, in an effort to amend the settlement agreement or to stipulate to a form of judgment, and to report to the court. At the hearing on October 16, the court told counsel for Appellants that it was not useful for them to speak only in generalities, and requested that counsel prepare specific language that could be considered by the court and counsel, to address Appellants' concerns. Apparently, counsel for Appellants prepared his written response December 6, by serving other counsel a proposed judgment called a "working draft" that listed his own objections, as well as language issuing a writ of mandamus, but that document was never filed with the court. Previously, on November 29, counsel for Appellants had suggested using this procedure for developing a proposed judgment, and had agreed to a hearing date to seek resolution of the matter on December 12. Inexplicably, there was no court appearance for Appellants that day, as next described.

D. Settlement Rulings; Judgment Entered; Appeal

At the scheduled hearing on December 12, the trial judge inquired about why counsel for Appellants was not in attendance. Plaintiff's attorney told him that he had spoken to counsel Gregory Peterson by telephone December 6 and learned that the remaining objections had been resolved. The City's attorney explained that she had not received any further objections from Appellants. The attorney for the Qualified Objectors was present and stated she was not appearing for any other objectors, such as SDPOA.

After further discussion, the trial court signed the proposed judgment prepared by Plaintiff and the City, with input from the various objectors. The judgment recited that the court had conducted an inquiry into the fairness of the proposed settlement, pursuant to the rules of court. The court found that the settling parties were in a position, through discovery and motions, to have a clear view of the strengths and weaknesses of their cases and to make an informed compromise of disputed issues. The negotiated settlement was reached through mediation and was not the product of any fraud, overreaching, or collusion between the negotiating parties and counsel. It was of the non-opt-out class settlement variety authorized by Federal Rules of Civil Procedure, rule 23(b)(2). The court noted that the percentage of objectors is low (approximately 10 percent).

The court first observed that the parties had been unable to agree upon amendments to the settlement agreement to clarify the release language and its effect, and therefore the court was required to interpret the existing release language in the settlement agreement. The court ruled that the intent of the parties as shown in the settlement agreement was, upon the finality of this judgment, that "(1) no other causes of action are released by members of the class; and (2) no class member may prosecute the same causes of action (comprised of the primary right of the plaintiffs) or seek any additional damages on any legal theory based upon the City's failure to pay the amount annually determined by the SDCERS actuary and approved by the SDCERS Board from 1996 to 2006." The subject "claims that arise from the facts that were alleged and prosecuted in this lawsuit by plaintiff McGuigan" were the specified charter claims and municipal code claims, which included the theory that the beneficiaries' contractual right to an actuarially sound pension fund could not be impaired through the City's past practice of underpaying its employer contributions, below the level set by the actuary employed by the retirement system. The scope of the release was stated to be coextensive with the causes of action arising from the facts alleged by Plaintiff.

The court then dealt with the Qualified Objectors' remaining objections, and ruled, as relevant here, that the City may not interpret the settlement agreement to use employee pick-up savings accounts either directly or indirectly to satisfy the remaining balance of $73 million. Other findings were made about the lack of preclusive effect of the judgment in the related litigation in the "benefits cases" brought by the Qualified Objectors and pending at that time.

With regard to the specific objections made by Appellants, the judgment (judgment, para. 11, 2d. subd. (1), p. 8), includes these findings to interpret the scope of the agreement:

"1. [T]he release does not extend to any claims other than the claims or causes of action set forth in the Plaintiffs' Second Amended Complaint, and, specifically, the release does not extend to claims arising out of: (i) the City's alleged failure to fund the pick-up portion of the employee retirement contribution, (ii) the City's alleged underfunding of retiree health benefits, (iii) any conspiracy by the SDCERS actuary with the City to understate the City's employer contribution to SDCERS, or (iv) claims not otherwise released or waived by the Settlement Agreement; provided, however, released claims would include damage claims under 42 U.S.C. section 1983 or any state, federal or common law to the extent that they are based upon the City's failure to pay the amount annually determined by the SDCERS actuary and approved by the SDCERS Board from 1996 to 2006, and any damages recovered for a claim under (iii) above would be limited to amounts in excess of the Special Additional Contribution [$73 million] paid by the City under the Settlement Agreement." (Italics added.)

"2. [T]he release does not relieve the City from its obligations to fully fund SDCERS or any retirement benefits or retirement health benefits in accordance with the City's obligations under law; and

"3. Section 6 of the Settlement Agreement was not intended to divest any other court of jurisdiction it currently has over pending claims." This resulted in the overruling of Appellants' objections.

The judgment further provides, "[b]ecause the Court has concluded that the only claims released under the Settlement Agreement are the claims that arise out of the facts that were alleged and prosecuted by plaintiff McGuigan, the fairness, adequacy and reasonableness of the $173 million consideration being paid by the City depends upon the value of only those claims, i.e., the 'Pension Underfunding Claims' defined by the parties. It does not depend upon the value of other claims that are not released. Based upon the evidence before the Court, the Court finds that the value of the Pension Underfunding Claims is between $140 million and $158.9 million. The consideration the City has agreed to pay to SDCERS on behalf of the class--$173 million--is more than fair, adequate, and reasonable." (Italics added.)

Based upon these findings and the evidence presented, the court approved the settlement as, taken as a whole, "fair, adequate and reasonable to the plaintiff, the plaintiff class, and the City." Judgment was entered accordingly to issue a peremptory writ of mandate requiring the City to comply with the settlement and provide security. The court retained jurisdiction over the parties in order to enforce the terms of the judgment and settlement agreement.

E. Motions in Appellate Court

After the notice of appeal was filed, the record was designated and filed on July 9, 2007. Shortly beforehand, on May 31, 2007, counsel for Plaintiff requested to borrow the copy of the record from Appellants, but was unable to do so after several communications. He then filed a motion for sanctions on the grounds of Appellants' failure to comply with court rules. (Rule 8.153.) In Appellants' opposition, they claim no timely request was made and clerical error was at fault. We address that motion in part VI, post, as well as addressing the motion by Respondent City for an award of monetary sanctions. We also discuss to some extent the parties' dispute in the briefs about the proper characterization of the tobacco securitization funds, as part of the settlement consideration, or as previously earmarked for other purposes, such as reimbursement of employee paycheck contributions to remedy the pension underfunding problems. (See pt. V.B, post.)

Both Respondents have filed individual motions to dismiss the appeal, arguing Appellants are not aggrieved parties and therefore lack standing to appeal. Opposition was filed and the matter deferred to the merits panel. They are discussed in part III, post.

On April 15, 2008, this court denied a motion by Appellants "to find Jackson DeMarco law firm is counsel for appellant." Apparently, SDPOA's original lead attorney, Gregory Peterson, recently left the Jackson DeMarco firm and temporarily sought to take the case with him, but at this time, counsel for Appellants remains the Jackson DeMarco firm, specifically, Christopher Nissen, as reflected in the most recent filings.

DISCUSSION

We first outline the standards of review and principles governing class certification rulings and judicial approval of class settlements, and set forth in some detail this sequence of events and how the trial court administered these proceedings. We then address the grounds given in the motions for dismissal.

On the merits, we shall examine the record to determine whether any abuse of discretion occurred when the trial court applied legal standards in the course of certifying the class and conducting the fairness hearings over a period of several months. We will then determine whether the trial court's approval of the settlement is supported by the record, in terms of its interpretation of the release provision in the settlement and regarding the adequacy of the amount and consideration for the settlement. Finally, we address the requests for sanctions.

I

APPLICABLE STANDARDS: CLASS CERTIFICATION SETTLEMENTS

This case presents a particular variation of a class action, in which the trial court certified the class provisionally and for the limited purpose of considering whether the settlement agreement reached by the representative plaintiff should also be approved on a classwide basis, as an appropriate theory and level of recovery for all class members. (Dunk v. Ford Motor Company (1996) 48 Cal.App.4th 1794, 1801(Dunk).)The intertwined issues of certification and approval of the settlement must be viewed against the backdrop of the other related pension litigation matters, as shown in this record, and the activities of the various parties in those related matters.

For purposes of reviewing the trial court's evaluation of the relevant factors in deciding to certify the class, the abuse of discretion standard applies. (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1104-1106 (Lockheed Martin).) The trial court had to consider whether an ascertainable class and a community of interest had been demonstrated, and it utilized its discretion in evaluating the strength of the respective showings made by the parties. (Id. at p. 1104 [community of interest requirements include (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class].)

In resolving certification questions, the trial court is usually not required to address the merits of the case, but instead it will focus on whether common or individual questions are present in the action. "[I]n determining whether there is substantial evidence to support a trial court's certification order we consider whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment." (Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327.) If the order is supported by substantial evidence, it normally will not be overturned " ' "unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation]" [citation] . . . . "Any valid pertinent reason stated will be sufficient to uphold the order." ' " (Ibid.)

At the same time as the certification criteria were being considered, the trial court was under an obligation to enforce due process requirements that apply when class members, who were not present when the settlement was negotiated, are brought into the action. The overall issue of adequacy of notice to the absent class members should be evaluated on review as a mixed question of law and fact, in which legal issues predominate. (Harustak v. Wilkins (2000) 84 Cal.App.4th 208, 212; McGhan Medical Corp.v. Superior Court (1992) 11 Cal.App.4th 804, 809-810.) " 'If the pertinent inquiry requires application of experience with human affairs, the question is predominantly factual and its determination is reviewed under the substantial-evidence test. If, by contrast, the inquiry requires a critical consideration, in a factual context, of legal principles and their underlying values, the question is predominantly legal and its determination is reviewed independently.' [Citation.]" (Harustak, supra, at p. 212.) Likewise, the application of standards created by statutes or rules to a set of undisputed facts is subject to de novo review. (Ibid.)

According to Appellants, the procedure used by this trial court in making the certification and approval rulings represents an erroneous interpretation of the applicable rules of court and due process standards. We will first evaluate the adequacy of the fairness hearing procedures used in this case, in the context of the provisional class certification granted and later confirmed. Appellants' arguments in this respect are mainly procedural in nature.

Next, we turn to the substantive issue of whether the judgment approving the settlement, including its interpretation of the release provision, adequately protects the interests of all class members. The trial court expressly adopted and applied the criteria laid out by the appellate court in Dunk, supra, 48 Cal.App.4th 1794, 1801, for evaluating the fairness and adequacy of such a class settlement. These include "the strength of the plaintiffs' case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement." (Ibid.) The judgment and underlying rulings are primarily subject to review of the correctness of the rulings made under applicable legal standards, and secondarily, for whether any abuse of discretion occurred when the trial court evaluated the merits of the certification and settlement issues.

In reviewing this type of judgment, an appellate court "will not 'substitute our notions of fairness for those of the [trial court] and the parties to the agreement. [Citations.]' [Citation.] ' "So long as the record . . . is adequate to reach 'an intelligent and objective opinion of the probabilities of success should the claim be litigated' and 'form an educated estimate of the complexity, expense and likely duration of such litigation, . . . and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise,' it is sufficient." [Citations.]' " (Dunk,supra, 48 Cal.App.4th 1794, 1802.)

With these factors in mind, we next address certain preliminary issues about the sequence of events and hearings that took place here, to lay the groundwork for our evaluation of the motions to dismiss, as well as the merits of the appeal.

II

BACKGROUND REGARDING TIMING OF SETTLEMENT;

STATUS OF RELATED LITIGATION

The parties disagree on the legal effect of many of the important events in this case, during the course of making and finalizing the settlement itself, and the course of the negotiations that were conducted toward the goal of finalizing the terms of the judgment granting approval of that settlement. These do not constitute factual disputes, but rather require us to draw legal conclusions from undisputed facts. For example, the operative date of the settlement between Plaintiff and the City is an important factor for evaluating the adequacy of the consideration paid by the City. Also, the terms of the release in the formalized settlement agreement must be interpreted in light of the record provided about the other litigation pending on related pension underfunding issues, as affected by the release, and the status of that related litigation may be informative on the issues before us.

A. Settlement Timing

The record reflects that this was one of several pending pension litigation matters in the spring of 2006. The Qualified Objectors were litigating the three consolidated "benefits cases" at that time, and some of the objectors, the MEA, were involved in negotiations about the use of the $100 million tobacco securitization funds, during April through June of that year. (See fn. 1, ante.) According to the McGrath declaration, he, as the executive assistant city attorney, considered that the negotiations in this case included the use of those $100 million funds. Those monies were paid June 21, approximately two weeks after the term sheet in this matter was executed June 8, 2006. After almost two months, the settlement agreement was formalized and signed by Plaintiff on August 31, 2006, and by the City's mayor on September 6, 2006.

According to Appellants, the settlement did not actually occur until Plaintiff signed the formalized document on August 31, so that the June 21 consideration may not be deemed to be sufficiently related to this settlement. Alternatively, Appellants contend that some of the language about the release was materially changed in the City's December 1 draft of the proposed judgment, to include language requested by Appellants about relief in mandamus, and to include language requested by Plaintiff and the City in other respects (mainly setting out the release terms more specifically).

At this point, we note that Respondent City has filed a motion to strike portions of the Appellants' reply brief, referring to these allegedly newly raised arguments on appeal about the effective date of the settlement (i.e., whether new terms were added to it December 1, 2006). We have received opposition by Appellant, essentially arguing those issues are subsumed in the other issues raised. We agree and deny the motion, and will address only those arguments that we deem to be properly before us.

According to Respondents, the operative date of the settlement was the June 8 signing of the term sheet, when the basic terms of the settlement were agreed upon, subject to obtaining court approval of the class settlement. It is not disputed that the preparation and funding of the proposed settlement of the action occurred in stages. After June 8, the formal settlement agreement was prepared and signed by both parties by September 6, and it apparently attached an exhibit A, a proposed judgment to approve the settlement. Both before and after the notice was sent out to absent class members, the objection proceedings were litigated. In July Appellants filed their notice of divestiture, in an effort to exclude themselves from the class (although this was a non-opt-out type class, seeking only declaratory or injunctive relief, so that the effectiveness of their notice is questionable). Next, their attorneys appeared at the August 4 hearing and the other status hearings, as well as the noticed October 16 fairness hearing, all the while expressing their objections. The court repeatedly expressed its intentions from the outset of these hearings that any release provision that it approved should not have any unintended consequences, such as serving as a bar to the federal causes of action then being litigated by Appellants.

On this record, and as a preliminary matter, we will treat the class settlement as having been agreed to in concept June 8, and being partially executed by the City when the payment was made June 21. At this point, the fact that the settlement had not yet been formalized as anticipated, until August 31 and September 6, does not prevent a finding that as a contractual matter, the agreement to settle became effective immediately, on a provisional and limited basis with regard to the class definition that the settling parties agreed would be affected by its terms. (Civ. Code,  1641, 1642 [several agreements on same subject between same parties to be construed together].) The settling parties followed proper procedures to give notice to the absent class members, on a non-opt-out basis, that they would become part of the settlement, since the type of relief requested allowed that type of procedure under the Federal Rules of Civil Procedure, as adapted by California courts. (Bell, supra, 226 Cal.App.3d 1589, 1605.)

Moreover, all participants were attempting to reach a negotiated amendment to the release provision, at least until November 29, but they were unable to do so. At that point, with the approval of the court, their attention turned to negotiating the terms of the proposed judgment, which would require the trial court to interpret the September 6 agreement's release provision.

Therefore, for our purposes, we should analyze the date of the settlement as the date of agreement in concept, on June 8, subject to the parties' pursuing the process of formalizing it and using procedural methods to notify the appropriate absent class members. It is a separate issue whether those procedural methods were utilized properly, or whether any prejudice to Appellants occurred, as we will further discuss in part V, post.

B. Status; Other Litigation

In addition to the related consolidated pension "benefits cases," and the two federal actions, the record contains references to the settlement of previous, similar pension litigation brought by retired City employees in Gleason, supra. During the summary judgment motion proceedings that occurred immediately before the June 8 settlement in this matter, the City was arguing that the Gleason settlement had a preclusive effect on Plaintiff's claims, and Plaintiff opposed that interpretation. As now explained by the City in its motion to dismiss, the 2004 settlement in Gleason resulted in additional payments being made by the City, prospectively, for the period between 2006 and 2008, above the payment previously authorized (by MP I or MP II). The class in Gleason was also a non-opt-out class settlement, of retired city employees, asserting similar pension underfunding claims beginning in 1996. Due to the settlement reached in the case before us, there was no court resolution of any res judicata or collateral estoppel arguments regarding the effect of the settlement in Gleason, upon this case. We need not address those issues either, as they are not before us.

With respect to the related consolidated pension "benefits cases," they were being tried in a nearby courtroom before Judge Barton, at the time of these proceedings. At the November 29 hearing, Plaintiff's attorney referred to rumors of a potential bankruptcy filing by the City, as part of the tactics being used in the benefits cases, and Plaintiff was arguing to the trial court that settlement approval should be forthcoming soon or else a bankruptcy filing might interfere with the security for the $73 million remaining payments. This lent some urgency to the proceedings, as did the fact that no interest was yet accruing, until judgment was entered.

In the "benefits cases," the judgment issued by Judge Barton is now on appeal to this court. The notice of appeal was filed September 25, 2007 by the City, and there are pending motions to dismiss. (SDCERS v. City of San Diego, D051805.) We cannot address any arguments about the effect or influence of the benefits cases rulings, but note only that appeal is pending.

With respect to the two pending federal cases, examination of the docket in the SDPOA matter shows that the SDPOA filed notices of appeal in September 2007 and June 2008, after summary judgment was granted in part and denied in part on SDPOA's remaining federal claims and related matters. That matter is pending in the Ninth Circuit Court of Appeals. (With respect to the federal case filed by the Aaron group, the docket shows that the City prevailed on its summary judgment motion on the federal claims, and the state claims were dismissed without prejudice.)

With this understanding of the history of the case, only as it affects the scope of the issues before the trial court, we turn first to the motions to dismiss and then to the merits of the arguments on appeal.

III

MOTIONS TO DISMISS

The motions to dismiss are based on arguments by both Plaintiff and the City that Appellants lack standing, for several reasons, to contest the rulings on certification and approval of the settlement. First, the moving parties contend that Appellants are not aggrieved by the settlement, which represents payment of substantial sums to correct some of the pension underfunding from 1996 to 2006. ( 902 ["Any party aggrieved may appeal in cases prescribed in this title"].) Before issuing the judgment, the trial court received and ruled upon Appellants' objections, such that moving parties contend Appellants suffered no harm or undue prejudice, since their positions were taken into account, even though they did not prevail on each point. Moving parties note that the Qualified Objectors had dropped almost all of their objections to the settlement, including the "past consideration" argument regarding the $100 million payment.

Second, the moving parties contend Appellants waived or forfeited any objections by their absence, without explanation, from the December 12 hearing, which was effectively treated as the final fairness hearing, in the absence of any known problems. Appellants had previously participated in negotiating revised language in the proposed judgment regarding the release of any related claims and had apparently communicated to opposing counsel, through Attorney Gregory Peterson on December 6, that their concerns were satisfied (although there is some confusion in the record about that issue, in the dueling declarations filed in connection with the motion to dismiss).

Moreover, the moving parties contend that Appellants' failure to seek relief from default after the December 12 hearing, or to otherwise take action to object to the judgment, shows that they effectively adopted the judgment, at least until the notice of appeal was filed almost two months later. In fact, they appeared to endorse the judgment by publicizing it on their website on December 14, and by filing a motion for attorney fees as prevailing parties in February 2007.

In support of his motion to dismiss, Plaintiff submits a declaration by class counsel, Mr. Conger, to the effect that Appellants did not pursue the appeal diligently, since they were in default during the preparation of the record, and Plaintiff was required to prepare separate documents to be lodged in connection with the motion to dismiss. Counsel states that in July of 2006 he began circulating drafts of the formal settlement agreement to known representatives of pension beneficiaries, such as counsel for the City and employee unions, including counsel for Appellants. He requested input from counsel regarding draft language of the settlement agreement. Regarding the draft judgment prepared December 1, 2006, counsel states that he received a call on December 6, from Appellants' then-attorney, Greg Peterson, stating that the proposed judgment was acceptable and satisfied his concerns. Also on December 6, Peterson's office served counsel for the City and Plaintiff with points and authorities in support of a stipulated application for writ order and entry of judgment and their proposed judgment. Although the documents were signed and stated that the proposed order was filed separately, Attorney Conger learned later that those two documents were not filed or lodged with the court.

In response to the motions to dismiss, Appellants submit the declaration of Mr. Peterson (now their former attorney), stating that neither he nor other attorneys at his firm approved the language of the release and the settlement agreement and judgment, and they did not waive their objections to the settlement. Appellants also submit a declaration from one of their current attorneys, Christopher Nissen, stating that he was prevented by traffic problems from attending the December 12 hearing, which was a further status conference, and he could not reach the court by telephone at that time. This is apparently the first explanation in the record why Appellants did not appear through their counsel at that hearing, i.e., that they believed a final fairness hearing would be set for a subsequent date, and counsel was unavoidably held up by traffic.

Appellants therefore argue that they are sufficiently aggrieved by the judgment, as objectors, and they have standing to raise issues on appeal. They point out that they raised numerous objections to the proposed settlement after they filed their notice of divestiture in July 2006, and participated in the hearings to continue to object at least through November 29, 2006. Also, to the extent that they could be bound by res judicata or collateral estoppel stemming from this judgment, they may be deemed to be aggrieved parties. (In re Lauren P. (1996) 44 Cal.App.4th 763, 771.) A party is aggrieved by a judgment if its rights or interests may be injuriously affected by it. (County of Alameda v. Carlson (1971) 5 Cal.3d 730, 736-737.)

We agree that Appellants have raised enough objections that were adequately preserved on appeal, in order that these issues should properly be addressed on their merits. As explained in Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387, 395-396, "A class member who appears at a fairness hearing and objects to a settlement affecting that class member has standing to appeal an adverse decision notwithstanding the fact that the member did not formally intervene in the action." (Ibid., citing Rebney v. Wells Fargo Bank (1990) 220 Cal.App.3d 1117, 1128-1132; Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134, 139; Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 253 (Wershba) [in "context of a class settlement, objecting is the procedural equivalent of intervening"].) Some of Appellants' objections to class certification and settlement approval were overruled and some were sustained. It is necessary for us to address the merits to determine the validity of those rulings, and we do not decide whether this appeal is frivolous in the context of dismissal. (But see pt. VI, post.) For purposes of analyzing the propriety of the judgment as a whole, Appellants have a sufficient basis to claim that they were "aggrieved" by the trial court's rulings. ( 902.)

Accordingly, the motions to dismiss are denied and we next turn to the merits.

IV

CERTIFICATION: PROVISIONAL AND CONFIRMED