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JACOBSON v. CITY OF CHICAGO

November 21, 2002

DONALD M. JACOBSON, DONALD KARNER AND ROBERT VALLEYFIELD, PLAINTIFFS,
V.
CITY OF CHICAGO, POLICEMEN'S ANNUITY AND BENEFIT FUND OF CHICAGO, FIREMEN'S ANNUITY AND BENEFIT FUND OF CHICAGO, MUNICIPAL EMPLOYEES', OFFICERS' AND OFFICIALS' ANNUITY AND BENEFIT FUND AND LABORERS' AND RETIREMENT BOARD EMPLOYEES' ANNUITY AND BENEFIT FUND, DEFENDANTS.



The opinion of the court was delivered by: Ruben Castillo, United States District Judge.

MEMORANDUM OPINION AND ORDER

This case arises from a long-standing dispute among the City of Chicago ("City"), participants in the City's annuitant healthcare plans and four of the City's annuitant and benefit funds. In the instant dispute, annuitants Donald M. Jacobson, Donald Karner and Robert Valleyfield sue the City, the Policemen's Annuity and Benefit Fund, the Firemen's Annuity and Benefit Fund, the Municipal Employees', Officers' and Officials' Annuity and Benefit Fund and the Laborers' and Retirement Board Employees' Annuity and Benefit Fund (collectively "Funds"). Plaintiffs' eight-count complaint alleges two federal claims against both the City and the Funds: (1) a 42 U.S.C. § 1983 claim for deprivation of their Fourteenth Amendment property and due process rights; and (2) impairment of contract under Article I, Section 10 of the United States Constitution. Plaintiffs also allege state law claims for breach of contract, several state constitutional claims as well as a claim against the City under the Illinois Consumer Fraud Act. Currently before the Court are the City's and the Funds' motions to dismiss pursuant to Federal Rules of Procedure 12(b)(1) and 12(b)(6). The City and the Funds provide a host of arguments for dismissal of this suit The Court has carefully considered all of the parties' arguments, and although we have reservations as to the propriety of this Court's jurisdiction over some of Plaintiffs' claims, we will not bar them in their entirety under the Rooker-Feldman doctrine. Rather, the Court opines that the more just and efficient result is a stay of this litigation pending resolution of the Korshak litigation in the Circuit Court of Cook County. City of Chi. v. Korshak, No. 01 CH 4962, previously 87 CH 10134 (Cir Ct. of Cook County). As such, the City's and the Funds' motions to dismiss are denied. (R. 41-1; 47-1.)

RELEVANT FACTS

I. Litigation History

The roots of the instant dispute extend back to 1987, when the City sued the Funds to require tern to obtain healthcare coverage for annuitants and to pay restitution for monies the City had expended on annuitants' healthcare benefits since 1982. City of Chi. v. Korshak, No. 87 CH 10134 (Cir. Ct. of Cook County). The Funds, in turn, filed counterclaims and sought an injunction to prevent termination of the annuitants' coverage. A group of annuitants then intervened in the suit to protect the interests of participants in the City's healthcare plan, and was certified as representatives of a class of annuitants who had retired on or before December 31, 1987 ("Korshak class"). Although the Circuit Court dismissed the City's complaint, the case proceeded to a bench trial on the Funds' counterclaims in June 1988. Before the Circuit Court issued its ruling, however, the City and the Funds reached a settlement agreement, in which, inter alia, the City agreed to pay at least 50% of the cost of annuitants' health care coverage. The City and the Funds also agreed to support legislation to implement the settlement agreement The resulting legislation, Public Act 86-273 (effective August 23, 1989), provided that the City's obligations would terminate at the end of 1997, and that in the event that a permanent solution was not reached by 1998, the annuitants would be permitted to reassert any rights they claimed at the beginning of the 1988 bench trial. Over the objections of the Korshak class, the Circuit Court approved the settlement agreement, ruling that it was in the best interest of the class because it eliminated the risk that the annuitants would have to pay the entire cost of their health benefits or would be unable to obtain coverage. City of Chi. v. Korshak, 565 N.E.2d 68, 71 (Ill.App. Ct. 1990). The Illinois Appellate Court affirmed the Circuit Court's approval of the settlement agreement Id., cert. denied, 575 N.E.2d 912 (Ill. 1991), cert denied, 503 U.S. 918 (1992).

Many developments related to the Korshak litigation occurred throughout the 1990s. First, in 1990 the Retired Chicago Police Association ("RCPA"), represented by Korshak class counsel, filed a suit in federal court challenging the Korshak settlement on behalf of a class of annuitants who began participating in the City's health care plan after December 31, 1987 and before August 23, 1989. Retired Chi. Police Ass'n, 1414 F.R.D. 477 (N.D. ILL. 1992). That litigation ended after two rounds of appeals in which the Seventh Circuit upheld the district court's denial of class certification and denial of a group of annuitants' motion to intervene, as well as the district court's dismissal of the case on remand for the RCPA's lack of associational standing. Retired Chi. Police Ass'n v. City of Chi., 7 F.3d 584, 594-99 (7th Cir. 1993); Retired Chi. Police Ass'n v. City of Chi., 76 F.3d 856, 863-67 (7th Cir. 1996). Second, the Illinois legislature passed Public Act 90-32 (effective June 1997), which continued annuitants' healthcare benefits for another five years or through June 30, 2002. Also, in April 1998 the City notified the annuitants of substantial rate increases for their plans.

During the time when the post-settlement period jurisdictional issues were being decided by the Illinois courts, the Jacobson plaintiffs sought relief in this Court, which dismissed the case pending resolution of the Korshak appeal. Jacobson, et al. v. Policemen's Annuity, et al., No. 99 C 0627 (N.D. Ill. Feb. 5, 1999). The Jacobson plaintiffs returned to this Court in 2001 and filed their initial complaint on June 25, 2001. Thus, currently there are related actions proceeding in both this Court and in the Circuit Court.

II. Pending State Court Action

In May 2002 the plaintiffs in the Korshak litigation filed an amended class action complaint The complaint includes eleven counts, primarily based on the annuitants' contention that they have a contract or property right to fixed-rate subsidized healthcare plans: (1) impairment of contract rights violating Article 13, Section 5 of the 1970 Illinois Constitution; (2) common law breach of contract; (3) common law estoppel; (4) violation of the Illinois Consumer Fraud Act; (5) ex post facto impairment of contract violating Article 1, Section 16 of the 1970 Illinois Constitution; (6) deprivation of property rights violating the Fourteenth Amendment, actionable under 42 U.S.C. § 1983; (7) impairment of contract right violating Article I, Section 10, Clause I of the United States Constitution; (8) violations of the procedural and substantive due process protections of the Fourteenth Amendment; (9) violation of the due process protections of Article 1, Section 2 of the 1970 Illinois Constitution; (10) a taking violating Article 1, Section 15 of the Illinois Constitution and (11) special legislation violating Article 4, Section 13 of the 1970 Illinois Constitution. (R. 42, App., Ex. A, Am. Compl.)

After the 2000 Appellate Court remand and despite the Appellate Court's ruling that the Circuit Court did not abuse its discretion in denying the intervenors' petition, the Circuit Court in 2001 ruled that the Korshak class could be enlarged to include annuitants who retired after December 31, 1987. The Korshak plaintiffs withdrew their motion to amend, however, when the Circuit Court denied the plaintiffs' request to extend an injunction to any annuitant beyond the Korshak class. The case was set for a hearing on May 30, 2002 on the parties' cross-motion for summary judgment.

III. Pending Federal Court Action


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