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December 10, 2009

Court Strictly Applies 18 Month Compensation Limits on Employment Contract Settlements and Closed Sessions for Anticipated Litigation

A community college district violated both the maximum contract compensation buyout provisions of the Government Code and the open meeting requirements of the Brown Act when it entered into a settlement agreement with the district president/superintendent. [Page v. MiraCosta Community College District (2009) --- Cal.Rptr.3d ---, 2009 WL 4021535 (Cal.App.4 Dist.).]


Victoria Richart was employed by the MiraCosta Community College District as its superintendent/president. Her disputes with college faculty resulted in a minority faction of board members making negative statements about Richart to the media. Richart claimed that these comments violated her due process and privacy rights by essentially giving her a negative public evaluation. Richart retained an attorney, but never filed a lawsuit or government tort claim. The district’s claims adjuster believed that Richart’s claims presented a significant threat of litigation to the district.

The district and Richart retained a retired judge to mediate the dispute. The board met in closed session under the anticipated litigation exception of the Brown Act. The board agenda item stated it was meeting regarding “anticipated litigation” and that there was one case. The agenda did not identify Richart or the facts in any manner. During that closed session, less than a quorum of board members left the board room at times to speak with the retired judge. The retired judge never entered the closed session with a majority of the board.

The parties reached a settlement agreement that granted to Richart, in part, 18 months’ salary including “step and CPI increases,” expenses of $3,150 per month for 18 months, health benefits, and retirement contributions. The district also agreed to pay Richart $43,500 in personal attorney’s fees and $650,000 for “damages.” Richart waived and released all claims.

A taxpayer and resident of the district (Page) gave notice to the district that the closed session violated the Brown Act and demanded that it “cure and correct” its action. At a subsequent meeting, the board agendized the closed session including identifying the superintendent/president position and ratified the agreement. The taxpayer then sued, alleging violations of the Brown Act and the maximum buyout provisions of the Government Code, and an unlawful gift of public funds.

Government Code Settlement Limits

Government Code sections 53260 and 53261 limit a local public agency to paying a contracted employee no more than the amount of salary left on the contract or 18 months’ salary (whichever is less) when settling an employment dispute. The only noncash item that may be included is payment for health benefits. The district’s settlement with Richart, which included monies for waiver of claims and attorney fees, clearly exceeded the 18-month limit salary and benefit maximum.

The court held that the statutory language clearly prohibited including “expenses” such as those in Richart’s settlement. It also held that the law’s maximum settlement amount includes any “damages” for alleged injuries. Essentially, the employee must choose between pursuing a lawsuit under the government tort claims requirements, or settling the matter with the statutory maximums. Thus, the court held that Page was entitled to summary adjudication on his claims that the agreement violated the statutory maximum settlement amount.

Gift of Public Funds

The appellate court returned the case for trial on Page’s allegation that the settlement was an unconstitutional gift of public funds. The issue at trial would be whether the district’s payments were to compromise a reasonable claim, whether Richart had a good faith belief of a colorable claim, and whether the district had a defense to any potential liability because Richart did not file a timely government tort claim.

Courts have held that settlement of a good faith dispute between a public entity and a private party is an appropriate use of public funds and is not a gift, because the relinquishment of a colorable legal claim in return for funds in a settlement is good consideration and a valid public purpose. On the other hand, settlement of a wholly invalid claim is inadequate consideration. Here, a triable issue of fact existed because the district had no liability beyond the statutory amount. Moreover, the remainder paid to Richart may have been based on an invalid claim.

Brown Act

The court finally found that the board’s actions violated the open meeting laws, and returned the case for trial on the issue of whether meeting with a mediator under the anticipated litigation exception violates the Brown Act. Government Code section 54956.9 allows governing boards to meet in closed session regarding anticipated or pending litigation. The board is authorized to confer with or obtain advice from legal counsel in such sessions, but the law is silent on whether the opposing party or a mediator may be present. Here, while the board may have been receiving some advice from legal counsel during the closed session, it actually was working with a mediator to resolve the dispute. Section 54956.9 does not allow closed sessions on anticipated litigation to meet with a mediator. While members of the board met with the mediator in groups of less than a quorum, such contact likely constituted “serial meetings,” which is also prohibited by the Brown Act.

Further, the board did not properly agendize the closed session. Where the meeting is being held to discuss anticipated litigation about which the opposing party is aware, the Brown Act requires that the agenda include the facts and circumstances of the possible claim. (In the alternative, those facts and circumstances may be stated during the open session of the board meeting prior to adjourning to closed session.) The court held that the board’s attempt to cure and correct the Brown Act violation was insufficient because the unlawful closed session was used to gather information and mediate and negotiate with Richart, which are not included as statutory reasons for closed session.

Impact on Public Employers

This case could have significant repercussions for local public agencies. The payment limitations of Government Code section 53260 apply to any “settlement” a public employee may receive under his or her contract in the event that a contract is terminated before the end of the contract term. The court essentially held that any settlement is limited by those terms, even if the employee has legitimate tort claims. In order to receive compensation for those claims, an employee would have to litigate rather than waive the claims as part of a severance agreement.

This case emphasizes the importance of complying with the Brown Act, and further shows that courts will strictly construe the provisions authorizing closed sessions. First, the anticipated and pending litigation exceptions will apply only when the board is consulting with legal counsel, and cannot include third parties, such as a mediator. (There is, however, an exception for conferring with a mediator as part of labor negotiations with employees in represented bargaining units.) Boards should use the “safe harbor” language for agenda items. Here, the safe harbor language clearly required more information from the board because the board was aware of her potential claims.

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