ZELON, J.
Appellant Long Beach Community College District Police Officers Association filed a petition for writ of mandate alleging that Respondent Long Beach Community College District failed to pay its police officers back pay as required under the parties' Memorandum of Understanding. The District demurred, arguing that the Association was collaterally estopped from seeking back pay based on prior proceedings before the Public Employment Relations Board.
The trial court sustained the demurrer without leave to amend. Because the Memorandum of Understanding does not support the Association's interpretation, we affirm.
In 2003, Respondent Long Beach Community College District (the District) elected to release all 13 of its campus safety officers and contract out its police services to the City of Long Beach. Shortly after the decision was announced, Appellant Long Beach Community College District Police Officers Association (the Association), who represented the safety officers (Association members), filed an unfair practice charge with the Public Employment Relations Board (PERB or the Board) alleging that the "the District had failed to negotiate with the Association over its decision to contract out police services and the effects of such a decision."
In January 2008, PERB issued Decision No. 1941, finding that although the District had acted permissibly in its "decision to contract out all police services to the City," it had violated the Educational Employment Relations Act (EERA) by "fail[ing] to bargain with the Association over the effects of contracting out." To remedy the EERA violation, PERB ordered the District to pay Association members back pay: "[b]eginning ten (10) days following the date [this] Decision is no longer subject to appeal, the District shall begin paying the Association members who were laid off effective August 1, 2003, their salary and benefits at the rate being paid prior to their layoff until either: (a) the date the District bargains to agreement with the Association regarding the effects of contracting out; [or] (b) the date the parties meet and confer to bona fide impasse."
On March 3, 2008, PERB informed the parties that it would hold additional proceedings to determine whether the District had complied with Decision No. 1941.
During the pendency of PERB's compliance proceedings, the District and the Association entered into a Memorandum of Understanding (MOU) which was intended to "resolve, conclude, and set forth the agreements pertaining to `effects bargaining' under PERB Decision No. 1941." Under the terms of the MOU, the District agreed to pay each Association member the equivalent of five months pay "at the member's rate of pay as of the date the member was laid off." In exchange for this one-time severance payment, the Association agreed that "July 31, 2008, shall be deemed the last day in which backpay and benefits may accumulate for the [Association] members in PERB Decision No. 1941."
The parties further agreed that the total amount of back pay the District owed to Association members would be determined by PERB in the pending compliance proceedings: "At the present time, the [District] and the [Association] are engaged in compliance proceedings before . . . [PERB] with respect to PERB Decision No. 1941, to determine the amount of back pay that will be owed to members of the [Association] by the [District] as determined by PERB"; "[t]he amount of backpay and benefits for each of the [Association] members shall be determined in accordance with the pending compliance proceedings before [PERB]."
Although the District's severance payments would be credited toward its total back pay obligation, the MOU was to have no other effect on PERB's compliance proceedings:
Paragraph 5 of the MOU summarized the overall effect of the parties' agreement on the issue of back pay: "July 31, 2008 shall be deemed the last day in which backpay and benefits may accumulate for the [Association] members in PERB Decision No. 1941. Accordingly, for purposes of the PERB compliance hearing . . ., the period of time that the [Association] members may be entitled to back pay and benefits, as set forth in PERB Decision No. 1941, is from the date of layoff until July 31, 2008. This provision has no other purpose than to bring closure to the College's previously ongoing obligation to continue to pay back pay."
After the parties executed the MOU, PERB assigned Administrative Law Judge Ann L. Weiman to determine "whether the District has complied with [Decision No. 1941]." Judge Weiman "directed the parties to submit pre-hearing briefs on the interpretation of [Decision No. 1941] with regard to when the District's monetary obligation to the laid-off employees was to begin, and whether it was ordered to pay traditional back pay."
The Association contended that Decision No. 1941 required the "the District to pay traditional back pay beginning on the date of layoff, August 1, 2003, until one of the conditions [described in the Order] is met." It also argued that, regardless of what Decision No. 1941 required in terms of back pay, the parties' MOU obligated the District to compensate members for back pay beginning on August 1, 2003.
The District disagreed, arguing that the plain language of the Board's order demonstrated that back pay was to begin "`ten (10) days following the date the Decision is no longer subject to appeal,'" which occurred on March 10, 2008. The District also asserted that "the Board's order, rather than the parties' MOU" dictated the amount of back pay owed to Association members.
On January 27, 2009, Judge Weiman ruled that Decision No. 1941 "did not order a traditional back pay remedy but rather ordered . . . the payment of wages and benefits, at pre-layoff rates, starting on March 10, 2008 and continuing until one of its stated conditions is met." Judge Weiman's ruling also stated that the parties' MOU had no effect on her decision, explaining: "it is not my responsibility to determine whether the District is complying with the MOU. Rather, it is my responsibility to determine whether the District is complying with the Board's Order."
The Association appealed Judge Weiman's decision to PERB. On June 22, 2009, the Board issued an order affirming the decision in its entirety.
On July 31, 2009, the Association filed a petition for writ of mandate in Los Angeles Superior Court alleging that the parties' MOU required the District to pay Association members back pay from August 1, 2003 to July 31, 2008. In support, the Association cited language in Paragraph 5 of the MOU stating that the parties had agreed "the period of time that the [Association] members may be entitled to back pay and benefits, as set forth in PERB Decision NO. 1941, is from the date of layoff until July 31, 2008." According to the petition, which was accompanied by a copy of the MOU, Paragraph 5 demonstrated that "the parties . . . agreed that back pay is retroactive to August 1, 2003."
The District demurred to the petition, asserting that the Association was collaterally estopped from asserting its members were entitled to back pay beginning on August 1, 2003 because PERB had already ruled that "Petitioner's members are only entitled to back pay from March 10, 2008." The District also argued that there was "no language in the MOU requiring back pay to August 1, 2003;" rather, the MOU stated "`[t]he amount of back pay and benefits for each of the [Association] members shall be determined in accordance with the pending compliance proceedings pending before [PERB].'" In support of its demurrer, the District requested the trial court to take judicial notice of Decision No. 1941 and PERB documents related to the Board's subsequent compliance proceedings.
At the hearing on the District's demurrer, the Association argued that PERB's compliance proceedings had nothing to do with the parties' obligations under the MOU and, as a result, collateral estoppel did not apply. The trial court rejected the argument and ruled that the Association was estopped from asserting its back pay claim:
On January 4, 2010, the trial court entered a judgment sustaining the demurrer without leave to amend and dismissing the petition in its entirety. The Association filed a timely appeal.
"The standard of review on appeal following the sustaining of a demurrer is de novo. [Citation.] `In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]' [Citations.]" (Hervey v. Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 960 (Hervey).)
"We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court's stated reasons. [Citation.]" (Las Lomas Land Co., LLC v. City of Los Angeles (2009) 177 Cal.App.4th 837, 848 (Las Lomas).) When a demurrer is sustained without leave to amend, we reverse if "there is a reasonable possibility that the defect can be cured by amendment." (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865 (City of Dinuba).)
The Association alleges that, regardless of any back pay PERB ordered the District to pay for failing to negotiate the "effects" of its contracting decision, the MOU imposed an independent obligation requiring the District to pay Association members back pay beginning on August 1, 2003, and continuing through July 31, 2008.
The District asserts instead that the MOU had no effect on the start date of its back pay obligation. According to the District, the MOU set July 31, 2008 as the date on which the District's continuing back pay obligation terminated and made clear that PERB would be responsible for determining all other issues related to back pay, including the date on which the back pay obligation began to run.
We independently review the MOU to determine what effect, if any, the agreement had on the commencement date of the District's back pay obligation.
The MOU is a "binding agreement and must be interpreted by the same rules as apply to other public or private contracts." (Social Services Union v. Alameda County Training & Employment Bd. (1989) 207 Cal.App.3d 1458, 1465; Riverside Sheriffs Assn. v. County of Riverside (2009) 173 Cal.App.4th 1410, 1424 (Riverside Sheriffs' Assn.) "`Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation.'" (Hervey, supra, 185 Cal.App.4th at p. 961; Civil Code, § 1636.) We ascertain that intention by "`focusing on the usual and ordinary meaning of the language used and the circumstances under which the agreement was made.'" (Riverside Sheriffs Assn., supra, 173 Cal.App.4th at p. 1424; Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, 688 (Legacy Vulcan); Civil Code, §§ 1639, 1647.) "We consider the contract as a whole and interpret its language in context so as to give effect to each provision, rather than interpret contractual language in isolation." (Legacy Vulcan, supra, 185 Cal.App.4th at p. 688.)
"Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible." (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239 (Aragon-Haas ).) "`So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement.' [Citation.]" (Id. at p. 239; see also Connell v. Zaid (1969) 268 Cal.App.2d 788, 794-795 ["in considering a pleading attacked by general demurrer," plaintiff's "`construction of . . . [the contract] should be accepted, if such construction be reasonable'"].) Thus, to survive demurrer, the Association's petition need only set forth a reasonable interpretation of the contract. (See generally Hervey, supra, 185 Cal.App.4th at p. 964 [for purposes of demurrer, court must determine whether written agreement is "reasonably susceptible" to meaning ascribed to it in complaint].)
To determine whether the MOU is reasonably susceptible to the Association's construction — that the MOU requires the District to pay Association members back pay beginning on the date of layoff, which occurred August 1, 2003, and continuing through July 31, 2008 — we must consider the language "of that instrument as a whole," (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265 ][italics removed]), and "the circumstances under which [the agreement] was made." (Civil Code, § 1647.)
The parties executed the MOU in response to PERB Decision No. 1941, which ordered the District to pay Association members back pay beginning "ten (10) days following the date [PERB's] Decision [was] no longer subject to appeal" and continuing until the parties bargained to agreement "regarding the effects of contracting out."
During the pendency of those proceedings, the parties executed the MOU, which "set forth the agreements pertaining to `effects bargaining' under PERB Decision No. 1941." The parties agreed that: (1) the District would pay each Association member a one-time severance payment, and (2) July 31, 2008, was to be "deemed the last day in which backpay and benefits may accumulate for [Association] members in PERB Decision No. 1941." The stated intent of the parties' agreement was "to bring closure to the College's previously ongoing obligation to continue to pay back pay and benefits."
The parties repeatedly emphasized that the MOU was not intended to have any effect on PERB's compliance proceedings and that the Board would determine the total amount of the District's back pay obligation:
When considered as a whole, the language of the MOU demonstrates that the parties did not intend the agreement to have any effect on the issue of back pay other than to establish July 31, 2008 as "the last day in which backpay and benefits may accumulate." Indeed, the MOU specifically states that the "only purpose" of the District's severance payments was to "to bring closure to the College's previously ongoing [back pay] obligation." PERB, in turn, was left to determine all other issues affecting the total amount of back pay, including the date on which the back pay obligation began.
The Association's contention that the MOU was intended to establish both the start date and termination date of the District's back pay obligation is predicated on Paragraph 5 of the MOU, which states:
The Association argues that the second line in the paragraph, which states that "the period of time that the [Association] members may be entitled to back pay and benefits, as set forth in PERB Decision No. 1941, is from the date of layoff until July 31, 2008," demonstrates "that back pay is retroactive to August 1, 2003."
When read as a whole, Paragraph 5 does not support the Association's interpretation. The first sentence of the paragraph states that July 31, 2008 "shall" be the final date on which back pay will accrue, while the second sentence states that, for the purposes of the PERB compliance hearing, the total period of time that the Association members "may" be entitled to back pay is the date of layoff to July 31, 2008. In their ordinary usage, the term "`shall' . . . [is construed] as mandatory" and the term "may" is construed "as permissive." (Jones v. Catholic Healthcare West (2007) 147 Cal.App.4th 300, 307; Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190, 202.) That is particularly true where, as here, those terms are used "in close proximity." (Cf. In re Richard E. (1978) 21 Cal.3d 349, 353-354 [when statute uses terms "`shall' and `may' in close proximity in a particular context, we may fairly infer the Legislature intended mandatory and discretionary meanings, respectively"].) Therefore, based on the usual and ordinary meaning of the language of Paragraph 5, the MOU set forth two parameters regarding the District's back pay obligation: (1) back pay could not accrue beyond July 31, 2008, and (2) the maximum period for back pay that PERB could award to Association members was August 1, 2003 to July 31, 2008. Although the parties agreed that PERB could order back pay beginning August 1, 2003, nothing in the MOU required the District to begin paying back pay on that date.
The Association's proposed construction of the MOU also ignores language stating that the agreement was not intended to "in any way affect the PERB compliance proceedings." One of the primary issues to be decided in those proceedings was the start date of the District's back pay obligation: the Association argued that Decision No. 1941 required back pay as of August 1, 2003, while the District argued that the Board had only ordered back pay as of March 10, 2008. Thus, under the Association's interpretation, the MOU decided a central issue presented in PERB's compliance proceedings. Such an outcome cannot be harmonized with the MOU's repeated admonition that the agreement was not intended to have any effect on PERB's proceedings.
The Association's interpretation also conflicts with language stating that: (1) the District's agreement to provide Association members severance pay had "no other purpose than to bring closure to the [District's] previously ongoing obligation to continue to pay back pay," and (2) the parties "shall retain all of their rights to establish the amount of backpay, or lack thereof, for the former employees through and including July 31, 2008." These provisions demonstrate that although the parties agreed the District's continuing back pay obligation terminated July 31, 2008, they otherwise reserved their right to assert any argument affecting the total amount of back pay. The Association's contention that the MOU effectively waived the District's right to argue that the back pay obligation began to run at some point after August 1, 2003 is totally inconsistent with those provisions.
In sum, the Association's reading of the MOU is predicated on a single line of text that, taken out of context and read in isolation, arguably supports its construction of the agreement. However, we may not "interpret contractual language in isolation," (Legacy Vulcan, supra, 185 Cal.App.4th at p. 688), nor may we apply a "`disjointed, single-paragraph, strict construction approach.'" (Ticor Title Ins. Co. v. Rancho Santa Fe Assn. (1986) 177 Cal.App.3d 726, 730.) When the entire text of the instrument is considered in conjunction with the circumstances surrounding its formation, the Association's proposed construction is "clearly erroneous" and must be rejected. (Aragon-Haas, supra, 231 Cal.App.3d at p. 239 ["`So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement.' [Citation.]"])
The only claim the Association asserted in its petition for writ of mandate is that the MOU requires the District to pay Association members "back pay and benefits from August 1, 2003 to July 31, 2008." Because the MOU is not reasonably susceptible to such an interpretation, we affirm the district court's order sustaining the demurrer without leave to amend.
The trial court's judgment is affirmed. Respondent is to recover its costs on appeal.
PERLUSS, P. J. and JACKSON, J., concurs.
