Retired City Manager’s Suit Over Pension Reduction Dismissed : Litigation: A judge rules that David J. Thompson’s case didn’t belong in a federal court. The Manhattan Beach City Council had cut his pension by $60,000 a year.

Former City Manager David J. Thompson has lost a bid to argue in federal court that he was deprived of his civil rights in 1990 when the Manhattan Beach City Council reduced his pension by $60,000 a year.

Thompson, 63, filed a federal lawsuit against the city in August in an attempt to win back his original pension of $139,000 a year. His suit also sought unspecified damages for defamation and breach of contract.

But U.S. District Judge Mariana R. Pfaelzer dismissed the suit Nov. 27, saying Thompson’s attorney failed to show why the matter should be litigated in federal court.

Attorneys for the city said they were pleased, though not surprised, by the judge’s ruling.

“I think the judge had correctly analyzed the case . . . that this wasn’t really a matter of federal concern,” said Gilbert Serota, a San Francisco attorney representing the city. “My hope is that he (Thompson) will see the handwriting on the wall and simply stop litigating.”

Thompson’s attorney, Richard A. Shinee, said he and his client plan to appeal the ruling or refile the case in state court.

“This is round one,” Shinee said. “Certainly we wouldn’t have pursued this case unless he and his lawyers felt very strongly this case was worth pursuing. He was treated very unfairly by the city. They attempted through a media campaign to ruin his name in the press. And we expect to have him fully vindicated.”

Thompson’s dispute with the city started shortly after he retired from the city manager’s post in May, 1990. His annual pension of $139,000 was about $50,000 a year more than he had been earning on the job.

About $82,000 a year in pension payments were to be made by the city while the remaining $57,000 was to come from the California Public Employees Retirement System (PERS).

Although the City Council initially approved the deal, members later said they had no idea until after his departure that the agreement allowed him to use accrued vacation and sick leave to inflate the base salary on which his pension was based.

When the council tried to negotiate a settlement with the former administrator, their talks stalled.

The council eventually voted to cut the city’s portion of his annual retirement benefit by $60,000, leaving him with a pension of $79,000. Members also decided to deduct money from his retirement check over five years as reimbursement for $78,000 in what they considered excess payments that he had received after his retirement.

In his lawsuit, Thompson says the council violated his civil rights to due process when it voted to reduce his pension. He claims the council members acted “to deflect criticism of . . . ineptitude” for not reading or understanding the initial agreement.

But Serota asserted that the City Council fulfilled its obligations to provide Thompson with due process when members invited him to appear at a public meeting to discuss the matter. Thompson, he claims, never showed.

City officials were not the only ones who have raised questions about Thompson’s controversial retirement deal.

A state controller’s audit in October, 1991, concluded that Manhattan Beach was among several cities in the region that improperly reported to PERS what it was paying Thompson and other city administrators. Because PERS uses those reports to calculate retirement pensions, the agency was found to be paying inflated pensions to hundreds of retired city officials statewide, said Sandra Lund, PERS assistant executive officer.

Meanwhile, the Los Angeles County district attorney’s office has been reviewing whether the city or Thompson violated any criminal laws in formulating Thompson’s retirement package. So far, investigators have made no final determination on the matter, said Sandi Gibbons, spokeswoman for the district attorney’s office.