Judges: Easterbrook
Filed: Feb. 25, 2015
Latest Update: Mar. 02, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 13---3790 MICHAEL W. UNDERWOOD, et al., Plaintiffs---Appellants, v. CITY OF CHICAGO, ILLINOIS, Defendant---Appellee. _ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 5687 — James F. Holderman, Judge. _ ARGUED DECEMBER 10, 2014 — DECIDED FEBRUARY 25, 2015 _ Before EASTERBROOK, SYKES, and HAMILTON, Circuit Judg--- es. EASTERBROOK, Circuit Judge. Since 1982 Chicago
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 13---3790 MICHAEL W. UNDERWOOD, et al., Plaintiffs---Appellants, v. CITY OF CHICAGO, ILLINOIS, Defendant---Appellee. _ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 5687 — James F. Holderman, Judge. _ ARGUED DECEMBER 10, 2014 — DECIDED FEBRUARY 25, 2015 _ Before EASTERBROOK, SYKES, and HAMILTON, Circuit Judg--- es. EASTERBROOK, Circuit Judge. Since 1982 Chicago ..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-‐‑3790
MICHAEL W. UNDERWOOD, et al.,
Plaintiffs-‐‑Appellants,
v.
CITY OF CHICAGO, ILLINOIS,
Defendant-‐‑Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13 C 5687 — James F. Holderman, Judge.
____________________
ARGUED DECEMBER 10, 2014 — DECIDED FEBRUARY 25, 2015
____________________
Before EASTERBROOK, SYKES, and HAMILTON, Circuit Judg-‐‑
es.
EASTERBROOK, Circuit Judge. Since 1982 Chicago has pro-‐‑
vided 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 ordi-‐‑
nance establishing these benefits expired. It had been enact-‐‑
ed in 2003 and contained a sunset clause providing for ter-‐‑
mination after 10 years. When the City notified the retirees
2 No. 13-‐‑3790
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 impair-‐‑
ing 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. 2013 U.S. Dist. LEXIS 174455 (N.D. Ill. Dec. 13, 2013).
While the case was on appeal, the Supreme Court of Illi-‐‑
nois held that the Pensions Clause applies to health benefits.
Kanerva v. Weems, 2014 IL 115811 (July 3, 2014). Both sides
then filed briefs asking us to decide the merits of the plain-‐‑
tiffs’ 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
No. 13-‐‑3790 3
retiree is nonetheless entitled to benefits for life. Chicago
contends that this is not a sound understanding of the Pen-‐‑
sions 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 (2015) (health benefits vest for pur-‐‑
poses 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 constitu-‐‑
tional 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 (Apr. 25,
2014), petition for leave to appeal allowed, 2014 IL LEXIS 954
(Sept. 24, 2014), which may shed light on the issues, but that
case has yet to be briefed, and the eventual decision in Mat-‐‑
thews 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
about the duration of health benefits interacts with the Pen-‐‑
sions Clause; but the court also could choose to embrace (or
reject) plaintiffs’ contention that all health benefits vest au-‐‑
tomatically by virtue of the Pensions Clause.
There is, moreover, a potentially important question that
the parties have not addressed: What “benefits” does the
Pensions Clause protect? Plaintiffs assume that it covers in-‐‑
kind benefits such as health care, no matter the cost to the
4 No. 13-‐‑3790
employer. Yet pensions promise a particular amount of
money (for defined-‐‑benefit plans) or the balance in a particu-‐‑
lar fund (for defined-‐‑contribution plans), not a particular
quantum of buying power. If the cost of automobiles, food,
or health care rises, the Pensions Clause does not require the
state to supplement pensions beyond the promised level. A
parallel approach for health care would imply that the Pen-‐‑
sions Clause locks in the amount of the promised subsidy
but does not guarantee a particular level of medical care.
Kanerva implies as much by saying that the state’s contribu-‐‑
tions to health-‐‑insurance premiums are the protected benefit.
But it did not tackle that issue directly. Silence makes it hard
for a federal court to resolve this appeal.
The state-‐‑law issues came to federal court via the sup-‐‑
plemental jurisdiction. We are free to resolve the federal
claims and return the state claims to state court. 28 U.S.C.
§1367(c)(1), (3). Although plaintiffs’ appellate briefs asked us
to decide the whole case, a post-‐‑argument supplemental
memorandum asked us to remand the state-‐‑law claims. Chi-‐‑
cago maintained its position that all issues should be re-‐‑
solved now. Given the uncertainty surrounding the state-‐‑
law claims, their importance to employees across Illinois,
and the fact that the district court did not even begin to ad-‐‑
dress them on the merits (having held that the Pensions
Clause does not apply), we conclude that a remand is the
best step—if the federal claims can be resolved without de-‐‑
ciding the state-‐‑law claims too.
The Contracts Clause does not create a right to have all
contractual claims enforced in federal court. It provides in-‐‑
stead that states may not enact any law impairing the obliga-‐‑
tion of contracts—that is, taking away entitlements that pre-‐‑
No. 13-‐‑3790 5
dated the change. See, e.g., General Motors Corp. v. Romein,
503 U.S. 181, 186 (1992); Allied Structural Steel Co. v. Spannaus,
438 U.S. 234, 244 (1978); Ogden v. Saunders, 25 U.S. (12
Wheat.) 213 (1827).
The Contracts Clause covers legislative as opposed to ex-‐‑
ecutive action. See, e.g., St. Paul Gas Light Co. v. St. Paul, 181
U.S. 142, 148 (1901); E&E Hauling, Inc. v. Forest Preserve Dis-‐‑
trict of Du Page County, 613 F.2d 675, 678 (7th Cir. 1980).
Plaintiffs attempt to satisfy this requirement by contending
that various state statutes have impaired their rights to
health benefits. But to the extent that they contest state stat-‐‑
utes, they have sued the wrong party. Chicago is not respon-‐‑
sible for the content of state law.
So have plaintiffs identified any legislative action by the
City that impairs contractual rights? They have not. They do
not accuse the City of making legislative changes that pre-‐‑
vent implementation of contracts.
Many decisions hold that legislation can breach a contract
without impairing the obligation of contracts. That’s the point
of E&E Hauling and the cases on which it relied. See, e.g., St.
Paul Gas Light, 181 U.S. at 149; Hays v. Port of Seattle, 251 U.S.
233, 237 (1920); Jackson Sawmill Co. v. United States, 580 F.2d
302 (8th Cir. 1978). A statute or ordinance preventing en-‐‑
forcement of contracts would create a problem under the
Contracts Clause, see E&E Hauling, 613 F.2d at 680–81 & n.7.
But plaintiffs do not contend that Chicago has adopted legis-‐‑
lation overriding or otherwise blocking the enforcement of
contracts about health benefits.
Illinois law provides plaintiffs with ample remedies, if
their state-‐‑law theories are correct. Cf. Mid-‐‑American Waste
6 No. 13-‐‑3790
Systems, Inc. v. Gary, 49 F.3d 286 (7th Cir. 1995); Simmons v.
Gillespie, 712 F.3d 1041 (7th Cir. 2013); Kay v. Chicago Board of
Education, 547 F.3d 736 (7th Cir. 2008). Far from superseding
contracts, Illinois law arguably gives promises more force
than they would have under the common law. The 2003 or-‐‑
dinance had a time limit; no one contends that its expiration
was a breach of contract. Older promises, which plaintiffs
and the district court characterize as “handshake deals,”
likewise are not enforceable as contracts. The Illinois Statute
of Frauds, see McInerney v. Charter Golf, Inc., 176 Ill.2d 482,
490 (1997), prevents the enforcement of oral promises that
extend more than a year into the future, as these “handshake
deals” did. (We have omitted details about the sequence of
promises underlying the plaintiffs’ claims. The district
court’s opinion recounts them; they do not matter to analysis
under the Contracts Clause.) Plaintiffs contend that the Pen-‐‑
sions Clause of the Illinois Constitution gives the City’s
promises greater force than the common law of contracts
provides, but that is a proposition of state law only and does
not create a claim under the federal Contracts Clause.
At oral argument plaintiffs’ counsel suggested that Chi-‐‑
cago may have violated the Takings Clause of the Fifth
Amendment by discontinuing or reducing health benefits.
No such argument appears in the briefs, and a takings claim
would be premature. The federal Constitution does not for-‐‑
bid takings; instead it requires just compensation. This
means that any takings claim belongs in state court, which
may award compensation. See Williamson County Regional
Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S.
172 (1985). An unripe takings claim cannot keep this suit in
federal court.
No. 13-‐‑3790 7
The federal judiciary has an institutional interest in al-‐‑
lowing states to resolve novel issues of state law. It would be
an abuse of discretion for a district court to retain the state-‐‑
law claims, once the federal claims have been resolved, and
it would be a mistake for us to say anything more about
them. Because the Supreme Court of Illinois has granted re-‐‑
view of a case whose disposition may cast light on plaintiffs’
claims, and because this suit began in state court, relinquish-‐‑
ing supplemental jurisdiction is preferable to certifying one
or more questions to the state judiciary. The judgment of the
district court is vacated, and the case is remanded with in-‐‑
structions to remand the state-‐‑law claims to state court un-‐‑
der §1367(c).
