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Underwood v. City of Chicago

United States Court of Appeals, Seventh Circuit

February 25, 2015

MICHAEL W. UNDERWOOD, et al., Plaintiffs-Appellants,

Argued December 10, 2014.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 5687 - James F. Holderman, Judge.

For MICHAEL W. UNDERWOOD, JOSEPH M. VUICH, RAYMOND SCACCHITTI, ROBERT MCNULTY, Plaintiffs - Appellants: Kenneth T. Goldstein, Attorney, Chicago, IL; Clinton A. Krislov, Attorney, KRISLOV & ASSOCIATES, Chicago, IL.

For JOHN E. DORN, Plaintiff - Appellant: Kenneth T. Goldstein, Attorney, Chicago, IL.

For CITY OF CHICAGO, Defendant - Appellee: Joseph Michael Gagliardo, Attorney, Jennifer A. Naber, Attorney, James J. Convery, Attorney, LANER MUCHIN, LTD., Chicago, IL; Sara K. Hornstra, Attorney, Benna Ruth Solomon, Attorney, CITY OF CHICAGO LAW DEPARTMENT, Chicago, IL; Michael T. Layden, Attorney, Richard J. Prendergast, Attorney, Lionel W. Weaver, Attorney, RICHARD J. PRENDERGAST, LTD., Chicago, IL.

Before EASTERBROOK, SYKES, and HAMILTON, Circuit Judges.


Page 462

Easterbrook, Circuit Judge.

Since 1982 Chicago has provided free or subsidized health care to retirees who receive pension benefits through funds for police, fire, and some other job classifications. In June 2013 the most recent ordinance establishing these benefits expired. It had been enacted in 2003 and contained a sunset clause providing for termination after 10 years. When the City notified the retirees that they would have to pay more for medical coverage in 2014, they filed suit in state court against the City. (They also named the funds but did not serve them with process, so they did not become parties.)

The suit's principal contention is that any reduction of health care or increase in the retirees' contribution toward it violates Art. XIII § 5 of the Illinois Constitution (the Pensions Clause), which says that " [m]embership in any pension or retirement system of ... any unit of local government ... shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." The complaint also asserted that the City's policy violates the Contracts Clause of the United States Constitution, Art. I § 10 cl. 1, which says that " [n]o State shall ... pass any ... Law impairing the Obligation of Contracts" . The federal claim allowed Chicago to remove the suit to federal court, which it did. See 28 U.S.C. § 1441. The district court dismissed the suit on the pleadings, ruling that the Pensions Clause does not apply to health care and that the Contracts Clause claim fails on the merits. (N.D. Ill.Dec. 13, 2013).

While the case was on appeal, the Supreme Court of Illinois held that the Pensions Clause applies to health benefits. Kanerva v. Weems, 2014 IL 115811, 383 Ill.Dec. 107, 13 N.E.3d 1228 (July 3, 2014). Both sides then filed briefs asking us to decide the merits of the plaintiffs' claim, which entails a contention that any participant in a pension plan who receives health benefits--even if from another source, such as the City of Chicago--is entitled to keep them no matter what terms the payor attached. On plaintiffs' understanding, if a city promises health coverage during one mayor's term of office, or for one year following a worker's retirement, or until 2013, or any other limit, the retiree is nonetheless entitled to benefits for life. Chicago contends that this is not a sound understanding of the Pensions Clause, which says that membership is " contractual" and does not imply that the terms on which benefits were established can be overridden. Cf. M& G Polymers USA, LLC v. Tackett, 135 S.Ct. 926, 190 L.Ed.2d 809 (2015) (health benefits

Page 463

vest for purposes of federal law when analysis under the ordinary law of contracts shows that a lifetime promise has been made; courts should not use a presumption for or against vesting).

We are reluctant to resolve a novel issue of state constitutional law. The Supreme Court of Illinois has not addressed the subject on which the parties disagree. Each finds some support in state decisions, but the Supreme Court has not tackled the issue directly, and it could not have done so until after holding in Kanerva that the Pensions Clause applies. The state's highest court has granted review in Matthews v. Chicago Transit Authority, 2014 IL App. (1st) 123348, 381 Ill.Dec. 44, 9 N.E.3d 1163 (Apr. 25, 2014), petition for leave to appeal allowed, 20 N.E.3d 1255, 386 Ill.Dec. 477 (Sept. 24, 2014), which may shed light on the issues, but that case has yet to be briefed, and the eventual decision in Matthews may or may not control this case. Health benefits in Matthews were created by a collective bargaining agreement, and the holding may be limited to how a CBA's silence ...

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