Underwood v. City of Chicago

Digitally signed by
Reporter of Decisions
Reason: I attest to the
Illinois Official Reports accuracy and
integrity of this
document
Appellate Court Date: 2017.10.19
12:01:03 -05'00'
Underwood v. City of Chicago, 2017 IL App (1st) 162356
Appellate Court MICHAEL W. UNDERWOOD, JOSEPH M. VUICH, RAYMOND
Caption SCACCHITTI, ROBERT McNULTY, JOHN E. DORN, WILLIAM
J. SELKE, JANIECE R. ARCHER, DENNIS MUSHOL, RICHARD
AGUINAGA, JAMES SANDOW, CATHERINE A. SANDOW,
MARIE JOHNSTON, and 338 Other Named Plaintiffs Listed,
Plaintiffs-Appellants, v. CITY OF CHICAGO, a Municipal
Corporation, Defendant, and TRUSTEES OF THE POLICEMEN’S
ANNUITY AND BENEFIT FUND OF CHICAGO; TRUSTEES OF
THE FIREMEN’S ANNUITY AND BENEFIT FUND OF
CHICAGO; TRUSTEES OF THE MUNICIPAL EMPLOYEES’
ANNUITY AND BENEFIT FUND OF CHICAGO; and TRUSTEES
OF THE LABORERS AND RETIREMENT BOARD EMPLOYEES’
ANNUITY AND BENEFIT FUND OF CHICAGO, et al.,
Defendants-Appellees.
District & No. First District, First Division
Docket Nos. 1-16-2356, 1-16-2357 cons.
Filed June 29, 2017
Rehearing denied August 3, 2017
Decision Under Appeal from the Circuit Court of Cook County, No. 13-CH-17450; the
Review Hon. Neil H. Cohen, Judge, presiding.
Judgment Affirmed in part, reversed in part, and remanded for further
proceedings consistent with this opinion.
Counsel on Clinton A. Krislov and Kenneth T. Goldstein, of Krislov &
Appeal Associates, Ltd., of Chicago, for appellants.
Stephen R. Patton, Corporation Counsel, of Chicago (Jane Elinor
Notz, Benna Ruth Solomon, Myriam Zreczny Kasper, and Sara K.
Hornstra, Assistant Corporation Counsel, of counsel), and Richard J.
Prendergast and Michael T. Layden, of Richard J. Prendergast, Ltd.,
and Joseph M. Gagliardo and Jennifer A. Naber, and James J.
Convery, of Laner Muchin, Ltd., all of Chicago, for appellees.
Panel JUSTICE SIMON delivered the judgment of the court, with opinion.
Presiding Justice Connors and Justice Harris concurred in the
judgment and opinion.
OPINION
¶1 This case is back before the court following another round of rulings by the circuit court
concerning plaintiffs’ rights to healthcare coverage. Plaintiffs are multiple categories of City of
Chicago (City) retirees who have participated in the City’s medical benefits plan and received
some level of healthcare coverage from the City over the years. The City has undertaken to
eliminate the healthcare benefits that many of the plaintiffs previously enjoyed, while the
plaintiffs have fought to retain the benefits under a number of legal and equitable principles.
The circuit court largely ruled in favor of the City and dismissed most of the plaintiffs’ claims.
We affirm in part, reverse in part, and remand the case for further proceedings.
¶2 BACKGROUND
¶3 The genesis of this case dates all the way back to the 1960s, but most of the relevant events
occurred between 1983 and the present. The City has long been providing fixed-rate
subsidized healthcare to its retirees through the City of Chicago Annuitant Medical Benefits
Plan. In 1983, the City agreed to provide a subsidy for the Police and Firefighter funds for a
healthcare benefit. Under that plan, the respective annuity and benefit funds (the Funds) would
provide a subsidy to the City to cover a set amount of the participants’ healthcare ($55 per
month for non-Medicare-eligible retirees and $21 per month for Medicare-eligible retirees).
Ill. Rev. Stat. 1983, ch. 108½, ¶ 5-167.5. The contributions themselves were funded by a City
tax. The municipal employees and the laborers and retirement board employees were brought
under the same construct as the police and firefighters in 1985, just at a smaller average
subsidy ($25 per month). Ill. Rev. Stat. 1985, ch. 108½, ¶ 11-160.1.
-2-
¶4 In 1987, the City began its quest to stop subsidizing retiree healthcare. The City notified the
Funds that it would stop providing healthcare benefits on the first day of 1988, and it filed suit
in the circuit court of Cook County (City of Chicago v. Korshak, No. 87 CH 10134 (Cir. Ct.
Cook Co.)), seeking a declaration that it had no obligation to continue providing coverage. The
Funds counterclaimed, seeking a declaration that the City was required to continue covering
healthcare costs. A group of retirees intervened and were certified as the “Korshak subclass.”
The Korshak subclass is comprised of individuals who retired on or before December 31,
1987. The “Window subclass” was certified later and is comprised of employees that retired
after December 31, 1987, but before August 23, 1989. The retirees counterclaimed, seeking a
declaration that they were entitled to lifetime healthcare coverage.
¶5 Before that case was adjudicated on the merits, the City and the Funds settled. The
individual retirees were not parties to the settlement. The settlement, which was adopted
legislatively as part of the Pension Code (Ill. Rev. Stat. 1989, ch. 108½, ¶ 5-167.5 (as amended
by Pub. Act 86-273, § 1 (eff. Aug. 23, 1989))), amended the 1983 and 1985 fixed-rate subsidy
statutes to set forth the City’s new obligations. The amendment stated that for the period from
1988 through the end of 1997, the Funds would continue to pay a subsidy and the City was also
responsible for 50% of the retirees’ healthcare coverage costs. The parties agreed to “negotiate
in good faith toward achieving a permanent resolution of this dispute” until the end of the
settlement period and that “[f]ailing agreement, the parties shall be restored to the same legal
status which existed as of October 19, 1987.” The amendment to the Pension Code explicitly
stipulated that the obligations set forth therein “shall terminate on December 31, 1997.” Ill.
Rev. Stat. 1989, ch. 108½, ¶ 5-167.5(e) (as amended by Pub. Act 86-273, § 1 (eff. Aug. 23,
1989)). The trial court in that Korshak case did not address the individual participants’ claim
for permanent coverage and imposed the settlement agreement on them.
¶6 When no permanent solution was reached by 1997, the City again sought to end its
coverage obligations altogether. The case ended up before this court, where we held that
“under the express terms of the settlement agreement, the [retirees] are entitled to reargue the
claims originally asserted” in the 1987 case. Ryan v. City of Chicago, No. 1-98-3465, slip order
at 7 (June 15, 2000) (unpublished order under Supreme Court Rule 23). Again before the
claims were adjudicated on the merits, the parties settled. After settlement extensions and
corresponding amendments to the Pension Code in 1997, 2002, and 2003 (Pub. Act 90-32, § 5
(eff. June 27, 1997); Pub. Act 92-599, § 10 (eff. June 28, 2002); Pub. Act 93-42, § 5 (eff. July
1, 2003)), all of which were substantially similar to the first settlement and all with the same
limiting language and expirations, the City conveyed its intent to end healthcare benefits for
retirees once and for all.
¶7 In the 2003 agreement, the parties agreed that, at the expiration of that agreement, “the City
may offer additional healthcare plans at its own discretion and may modify, amend, or
terminate any of such additional healthcare plans at its sole discretion.” The agreement created
the Retiree Health Care Benefits Commission (RHBC) that would make recommendations
concerning the state of retiree health care benefits, the costs of those benefits, and issues
affecting the retirees’ benefits to be offered after July 1, 2013. The 2003 agreement was set to
expire in 2013. Before the agreement expired, the City notified retirees that, on the
recommendation of the RHBC, once the agreement expired in 2013, the City was going to
begin to reduce healthcare benefits until January 2017, at which time the City would end the
plan in its entirety. Certain classes of employees, like those in the Korshak and Window
-3-
subclasses, would retain healthcare benefits under the City’s new plan but others, particularly
those hired after 1989, would not.
¶8 Plaintiffs attempted to revive the 1987 lawsuit in the circuit court of Cook County, but the
court ordered them to interpose their claims in a newly-filed complaint (this case). Once the
new case was filed, the City removed it to federal court. After the federal district court
dismissed the retirees’ claims (Underwood v. City of Chicago, No. 13 C 5687, 2013 WL
6578777, at *17 (N.D. Ill. Dec. 13, 2013)), the United States Court of Appeals for the Seventh
Circuit affirmed the dismissal of the federal claims, but remanded the matter to state court for a
resolution of the “novel issues of state law.” Underwood v. City of Chicago, 779 F.3d 461,
464-465 (7th Cir. 2015).
¶9 Back in state court, the City filed a motion to dismiss. The plaintiffs’ third amended
complaint has claims for improper diminution of pension benefits under the Illinois
Constitution (count I), breach of contract (count II), estoppel (count III), impairment of
contract (count V), and equal protection and special legislation challenges to the City’s plan of
action (counts VI and VII).1 The parties and the courts have discussed the retirees as broken
down into four subclasses: (1) the Korshak subclass, made up of people who retired before
December 31, 1987; (2) the Window subclass, made up of people who retired between January
1, 1988 and August 23, 1989; (3) subclass three, made up of people who retired on or after
August 23, 1989; and (4) subclass four, made up of people who were hired after August 23,
1989.
¶ 10 While the motion to dismiss was still pending and before the trial court entered a judgment
on the merits of plaintiffs’ claims, plaintiffs filed a motion for a preliminary injunction. The
trial court denied the sought-after injunctive relief. Plaintiffs appealed that ruling and, after
examining plaintiffs’ claims insofar as they related to preliminary injunctive relief, we
affirmed. Underwood v. City of Chicago, 2016 IL App (1st) 153613, ¶ 32, appeal denied, No.
121498 (Ill. Jan. 25, 2017).
¶ 11 In resolving the motions to dismiss, the trial court held that plaintiffs could not state a claim
on the 1987, 1997, or 2003 amendments under the Illinois Constitution’s pension protection
clause because the settlements on which the claims are based provided only time-limited
benefits. The trial court did, however, hold that the members of the Korshak subclass, the
Window subclass, and subclass three could state a claim based on the 1983 and 1985
amendments that did not contain the same limiting language that the subsequent amendments
did. The trial court dismissed the remaining claims, denied the plaintiffs’ motion for class
certification, and made a finding that there was no just reason to delay appeal of its judgment
on the claims it dismissed (see Ill. S. Ct. R. 304(a) (eff. Jan. 1, 2006)). The retirees later filed a
renewed motion for a preliminary injunction, which the trial court also denied.
¶ 12 The case is now before the court on an interlocutory appeal principally concerning the
propriety of the trial court’s ruling on motions to dismiss filed by the City and the Funds. The
retirees’ renewed request for injunctive relief is also part of their appeal.
1
Count IV was a claim for a due process violation under federal law. It was dismissed in the federal
case and did not call for an answer from the defendants in this case.
-4-
¶ 13 ANALYSIS
¶ 14 The trial court dismissed the retirees’ claims under section 2-615 of the Illinois Code of
Civil Procedure. A section 2-615 motion to dismiss attacks the sufficiency of a complaint and
raises the question of whether a complaint states a cause of action upon which relief can be
granted. 735 ILCS 5/2-615 (West 2012); Fox v. Seiden, 382 Ill. App. 3d 288, 294 (2008). All
well-pleaded facts must be taken as true, and any inferences should be drawn in favor of the
nonmovant. Jones v. Brown-Marino, 2017 IL App (1st) 152852, ¶ 19. A section 2-615 motion
to dismiss should not be granted unless no set of facts could be proved that would entitle the
plaintiff to relief. Id. We review the dismissal of a plaintiff’s claims de novo. Sandholm v.
Kuecker, 2012 IL 111443, ¶ 55.
¶ 15 I. Claims Under the Pension Protection Clause (Count I)
¶ 16 The pension protection clause of the Illinois Constitution has been the focus of
considerable public attention recently. As the State, cities, and other public employers attempt
to rein in their pension obligations and workers and retirees attempt to secure all the benefits
they have been promised, many of the disputes have made their way through our courts. The
decisive legal mechanism in many of these cases has been the pension protection clause. See,
e.g., In re Pension Reform Litigation, 2015 IL 118585, ¶ 89.
¶ 17 The pension protection clause of the Illinois Constitution states that “[m]embership in any
pension or retirement system of the State, any unit of local government or school district, or
any agency or instrumentality thereof, shall be an enforceable contractual relationship, the
benefits of which shall not be diminished or impaired.” Ill. Const. 1970, art. XIII, § 5. The
pension protection clause is intended to eliminate the uncertainty that surrounded public
pension benefits (People ex rel. Sklodowski v. State, 182 Ill. 2d 220, 228 (1998)) and to provide
public employees with a basic protection against the complete abolition of their rights or the
reduction of their benefits after they have already embarked upon employment (Miller v.
Retirement Board of Policemen’s Annuity & Benefit Fund, 329 Ill. App. 3d 589, 597 (2001)).
¶ 18 A. Claims Based on the 1997, 2002, and 2003 Settlements and Amendments
¶ 19 The retirees argue that they are entitled to “lifetime healthcare coverage” “for each annuitant
class, as it best was during their participation.” For that to be the case, we would have to find
that the Illinois Constitution’s pension protection clause (Ill. Const. 1970, art. XIII, § 5)
protected the benefit levels in the 1997, 2002, and 2003 amendments for life for any member of
any subclass that participated in the plan while the particular amendment was in effect. The
retirees’ argument for permanent coverage on these terms has a significant emphasis on the
Illinois Constitution’s pension protection clause (Ill. Const. 1970, art. XIII, § 5) and the Illinois
Supreme Court’s decision in Kanerva v. Weems, 2014 IL 115811, so we begin there. However,
we find that neither the Illinois Constitution nor the Kanerva decision extend the settlements’
benefit levels to retirees beyond the temporal scope of those agreements.
¶ 20 The Illinois Supreme Court has interpreted the pension protection clause to protect not only
the retirement annuity itself from diminution, but instead has held that all of the benefits
flowing from one’s participation in a public pension system are constitutionally protected.
Kanerva v. Weems, 2014 IL 115811, ¶ 40. This constitutional protection included, specifically,
health insurance subsidies. Id. ¶¶ 41, 57.
-5-
¶ 21 The retirees here maintain that their situation is the same as the retirees in Kanerva. They
are part of a qualifying public pension system. Their healthcare subsidies have come from their
participation in that system. Their public employer obligated itself to contribute to the cost of
their healthcare. And, therefore, the City’s plan to cease making healthcare contributions in
accordance with the 1997, 2002, and 2003 amendments is unconstitutional.
¶ 22 However, the plaintiffs here are not in the same situation as the retirees in Kanerva. In that
case, the healthcare subsidies were an open-ended obligation of the State, bestowed on the
employees without condition. The same is not true here. In this case, the benefits that the
retirees are trying to protect were conditional benefits that have since expired.
¶ 23 In 1987, the City sought to stop paying for retirees’ healthcare coverage and initiated legal
action in order to get a declaration of the parties’ rights and obligations. The result was that a
settlement was reached in 1989 and extended in 1997 and 2003 to offer subsidies and
coverage, but each settlement contained an expiration date. The last amendment obligated the
City only until June 30, 2013, and expressly provided that the City’s obligations under that
settlement terminated at that point. That was what the parties agreed upon and the General
Assembly adopted.
¶ 24 As we explained when we affirmed the trial court’s decision to deny the injunctive relief
sought by the retirees, the settlements and attendant amendments did not create lifetime
benefits because the benefits came with an expiration date. Underwood v. City of Chicago,
2016 IL App (1st) 153613, ¶¶ 23, 27. The expiration date was embedded in the benefit itself,
and the benefit does not endure beyond the expiration date by application of the pension
protection clause. Employees that began to participate in the retirement system in 1989
forward, like those already enrolled, were vested with the rights provided in the amendment in
effect when they became employed and subsequent amendments enacted during their
employment. However, they never had any contractual, statutory, or constitutional
commitment that benefits at those levels would become permanent or extend beyond the
contract’s own term. Therefore, no member of any subclass can state a cause of action under
count I insofar as the claim is based on the 1989, 1997, or 2003 settlements.
¶ 25 The pension protection clause enables employees to “lock in” pension rights that exist
when they become employed or those that spring up thereafter during their employment. Bosco
v. Chicago Transit Authority, 164 F. Supp. 2d 1040, 1056 (N.D. Ill. 2001). All that the
employees here could lock in during the amendment periods was the City’s obligation to
provide healthcare benefits as expressly provided for and conditioned by the statute. The scope
of the pension protection clause’s application is “governed by the actual terms of the contract
or pension.” Kerner v. State Employees’ Retirement System, 72 Ill. 2d 507, 514 (1978) (citing
Ill. Ann. Stat., Ill. Const. 1970, art. XIII, § 5, Constitutional Commentary, at 302 (Smith-Hurd
1971)). The time limitation here was a condition of the employment relationship to which
those employees consented. See id. There was never any contractual or statutory commitment
by the City to provide the benefit levels in the amendments beyond the life of the amendments
themselves. And without a contractual or statutory commitment to create a benefit, there is
nothing that the pension protection clause can protect.
¶ 26 While the pension protection clause guarantees the vested rights of a public employee as
provided in the contract that defines a participant’s retirement system membership, it does not
change the terms of that contract or the essential nature of the rights it confers. Matthews v.
Chicago Transit Authority, 2016 IL 117638, ¶ 59. The retirees’ argument is that they are
-6-
entitled to benefits on the best terms that were ever provided to them, without regard to the
limitations that encumbered those benefits. Such an interpretation would be an unwarranted
extension of the pension protection clause that would enable the clause to create and define
benefits rather than protect existing ones. A right cannot be protected if it does not exist. Here,
the retirees have no enduring right to the benefit levels in the 1989, 1997, and 2003
amendments that the pension protection clause could possibly protect.
¶ 27 There is nothing in the Illinois Constitution or in any statute or precedent that prohibits the
legislature from attaching conditions to the receipt of a statutory benefit, such as the limited
time period here. To the contrary, where the legislature grants a right, it is free to define the
parameters and application of that right. Kaufman, Litwin & Feinstein v. Edgar, 301 Ill. App.
3d 826, 831 (1998). There is nothing to prohibit the legislature from granting a privilege for a
limited period of time or from incorporating an expiration date into an amendment. In re
Petition for Detachment of Land From Morrison Community Hospital District, 318 Ill. App.
3d 922, 930 (2000). This is especially true where the statute merely codified the parties’ own
agreement. The pension protection clause does not affect the contours of the rights
themselves—that is for the General Assembly to delineate when it grants benefits in the first
instance.
¶ 28 After Kanerva was decided, our supreme court also explained that the pension protection
clause does not present “an obstacle to a contractual provision that permits subsequent
modification of public retirement benefits.” Matthews, 2016 IL 117638, ¶ 66. Thus,
importantly, “where a public employee becomes a member of a retirement system under a
statute that includes a provision which may operate to deny him benefits in the future, that
provision does not become an unconstitutional impairment of his retirement benefits because
he agreed to it as a condition of his membership in the system.” Id. ¶ 61. That means that where
a benefit is conditional when conferred, the pension protection clause does not operate to
remove the condition. And parties are free to contract for benefits, including temporary ones.
See id. ¶ 66.
¶ 29 All of the foregoing analysis is a long way of saying that no retiree can state a claim for
healthcare coverage as it was provided under the time-limited amendments under count I of the
third amended complaint. When the amendments expired, the benefits granted therein expired.
The pension protection clause does not give the retirees lifetime coverage in the manner that
the coverage existed under the amendments, and the expiration of those benefits is not a
diminution or impairment of any protected benefit flowing from participation in a public
pension system.
¶ 30 B. Do the Retirees Have a Claim for Any Enduring Benefit,
and How Is the Benefit Defined?
¶ 31 Our holding that the 1989, 1997, and 2003 amendments do not create lifetime coverage
under the pension protection clause is not the end of the analysis. Before those amendments
were enacted, the parties agreed upon and the General Assembly adopted healthcare benefit
plans in 1983 and 1985 that contained no such limitations. The benefits conferred under those
amendments are unconditional healthcare benefits commensurate with the benefits provided
by the statute covering the retirees in Kanerva—and they cannot be diminished.
¶ 32 Although the issue is essentially moot for the Korshak and Window subclasses, the trial
court held that the members of subclass three could state a claim under count I for benefits
-7-
based on the 1983 and 1985 amendments under the pension protection clause. The trial court,
however, held that the members of subclass four could not state a claim under count I for
benefits based on the 1983 and 1985 amendments because they began participating in the
retirement system during the operative period of the 1989 settlement and, thus, were subject to
its expiration and left with nothing.
¶ 33 The idea contemplated by the parties upon settling the 1987 Korshak litigation was that the
parties would continue to negotiate during the settlement period and, if they could not resolve
their issues by the end of it, the parties would be restored to their pre-settlement positions and
litigation could (and assuredly would) resume. The result is that when the settlement expired,
the parties’ rights and obligations returned to the status existing when the 1987 litigation
began. Under the 1983 and 1985 amendments, employees were given an open-ended,
unconditioned fixed-rate subsidy for their healthcare coverage, and those benefits, like the
ones offered in Kanerva, are protected. When the 1987 litigation was settled (put on hold), no
one ever anticipated, and there is no legal basis to conclude, that once the settlement expired,
the City’s obligations would be terminated as a matter of law.
¶ 34 In the 1989 settlement, the parties agreed to “negotiate in good faith toward achieving a
permanent resolution of this dispute” until the end of the settlement period and that “[f]ailing
agreement, the parties shall be restored to the same legal status which existed as of October 19,
1987.” When no permanent solution was reached by 1997, and the City tried to terminate the
plan unilaterally again, the case ended up before this court, which held that “under the express
terms of the settlement agreement, the [retirees] are entitled to reargue the claims originally
asserted” in the 1987 case. Ryan, No. 1-98-3465, slip order at 7.
¶ 35 It was not until the 2003 settlement was executed that the parties agreed that the City would
have the unilateral authority to end the program entirely, meaning that all persons that
participated in the retirement system before that agreement was executed still maintained a
vested right to the unconditional 1983 and 1985 amendments. Therefore, the retirees in
subclass four that began to participate in the retirement system before the 2003 settlement was
executed have a claim under count I based on the 1983 and 1985 amendments under the
pension protection clause.
¶ 36 For the first time in the 2003 agreement, the parties agreed that, at the expiration of that
agreement, “the City may offer additional healthcare plans at its own discretion and may
modify, amend, or terminate any of such additional healthcare plans at its sole discretion.” So
for the first time in 2003, the City obtained the requisite legal authority and put any new entrant
to the retirement system on notice that, if and when the time-limited 2003 plan was terminated,
there would be no further coverage at all. And because of the pension protection clause, such a
promulgation can only be applied prospectively to employees whose participation in the
system begins thereafter.
¶ 37 Even those retirees who began participating in the system after 1989 still had vested rights
in the 1983 or 1985 amendments. The post-1989 participants did not start under a benefit plan
that said all healthcare benefits would expire at the end of the settlement period. They started
on a time-limited plan, which stated that they would be reinstated to the pre-settlement status
quo at the time the settlement expired. The settlements never expressed that future annuitants
were to be treated differently or precluded from also reverting to the pre-settlement status quo.
When the 2003 settlement expired in 2013, the rights of employees whose participation started
before the 2003 settlement was executed merely reverted to the status existing when the
-8-
Korshak case was filed in 1987. So, being back at that point, the City is obligated to those
retirees under the 1983 and 1985 amendments.
¶ 38 When the case was before us for a review of the denial of a motion for a preliminary
injunction, our main inquiry was into whether the 2016 benefits were a sufficient substitute for
the 1983 and 1985 levels. Underwood, 2016 IL App (1st) 153613, ¶ 26. Our review at that
point was also whether the trial court abused its discretion in denying the preliminary
injunctive relief. Id. The fact of the matter is that the 1983 and 1985 amendments offered
healthcare benefits with no strings attached. The settlements acted as a substitute for those
benefits on an interim basis and did not diminish them, but in fact, enhanced them. See id.
¶¶ 25-26. However, when the settlements ceased to operate as a matter of law, the retirees still
had the 1983 and 1985 benefits to fall back on—benefits that cannot legally be diminished.2
¶ 39 The next question then is what is the “benefit” that is actually protected? The United States
Court of Appeals for the Seventh Circuit alluded to this question in its opinion remanding the
case to state court:
“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 employer. Yet
pensions promise a particular amount of money (for defined-benefit plans) or the
balance in a particular 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 Pensions 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 contributions to
health-insurance premiums are the protected benefit.” (Emphasis in original.)
Underwood v. City of Chicago, 779 F.3d 461, 463 (7th Cir. 2015).
We hold that the pension protection clause protects the latter—the fixed-rate subsidy itself.
When the benefit at issue is a defined subsidy, the clause protects the pensioner’s right to that
contribution at that specific level. The recipients get what the statute or contract that grants the
right expressly says they get. Matthews, 2016 IL 117638, ¶¶ 59, 66.
¶ 40 Under the 1983 amendment, the City is obligated to pay toward its retirees’ healthcare $55
per month for non-Medicare-eligible retirees and $21 per month for Medicare-eligible retirees.
Ill. Rev. Stat. 1983, ch. 108½, ¶ 5-167.5(d). Under the 1985 amendment, the City is obligated
to pay $25 per month for its municipal employees and laborers and retirement board
employees. Ill. Rev. Stat. 1985, ch. 108½, ¶ 11-160.1. The retirees contend that the pension
protection clause should be considered to protect their abstract right to “healthcare coverage.”
But that is not what the Illinois Constitution provides. The pension protection clause protects a
specific tangible benefit that cannot be diminished or impaired. See Kanerva, 2014 IL 115811,
¶¶ 38, 57. It is the subsidy itself that is protected. Under count I, the pension protection clause
2
In dicta in our opinion affirming the denial of preliminary injunctive relief, we imprecisely stated
that subclass four had “no ascertainable claims to lifetime healthcare benefits.” Underwood, 2016 IL
App (1st) 153613, ¶ 23. However, as alluded to in the preceding sentence of that opinion and
encapsulated the opinion as a whole, our review concerned the interim settlement agreements, which
we reaffirm today did not create any right to lifetime coverage.
-9-
protects the benefits in the 1983 and 1985 amendments for any retiree who began participating
in the retirement system before the 2003 settlement was executed. The 1983 and 1985
amendments represent the highest level of benefits to which the retirees ever had an enduring
right. For the reasons set forth in section A above, the pension protection clause entitles the
retirees to nothing more.
¶ 41 C. Statute of Limitations and Jurisdiction
¶ 42 In the trial court, the City maintained that all of the retirees’ claims under the 1983 and
1985 amendments are barred by the statute of limitations. At least one of the retirement funds
joined in this argument. This argument applies to our previously-expressed holding as it
challenges whether any of the retirees, but particularly subclasses three and four, can state a
claim based on the 1983 and 1985 amendments after the passage of so much time. The City and
the Funds contend that the retirees’ claims under the 1983 and 1985 amendments are
contract-based, and even with the application of the pension protection clause, are subject to
and barred by the 10-year statute of limitations for contract claims (735 ILCS 5/13-206 (West
2012)). The trial court ruled that the statute of limitations issue was moot as to the Korshak and
Window subclasses because the parties had agreed upon some form of coverage that the City
would provide for those members. The trial court held that as for subclass three, there was a
question of fact about when the members discovered their injury under the discovery rule, so it
denied the City’s motion to dismiss in that regard. Then the court held that as for subclass four,
they had no claim for relief in any event, so it was unnecessary to address the applicability of
the statute of limitations for those members. We hold that none of the claims made under count
I of the third amended complaint are time-barred.
¶ 43 The parties agreed in the 1989 settlement that “failing agreement” on a “permanent
resolution of this dispute” they would be restored to their same legal status as it existed on
October 19, 1987. The parties never reached a permanent solution. Then, when the City tried to
unilaterally end the program again, we held that the retirees are “entitled to reargue the claims
originally asserted” in the 1987 case. Ryan, No. 1-98-3465, slip order at 7. The 2003 settlement
agreement again put off a judicial resolution of the suit, tolling the limitations period by
agreement and once again expressly reserving the retirees’ rights to pursue their claims for
permanent coverage. The parties continued to settle for periods up until 2013 (and really until
2017) when, still having not arrived at a permanent solution, the City terminated its healthcare
plan. The limitations period never expired for the retirees’ claims.
¶ 44 The trial court applied the limits attached to the post-1987 settlements against the retirees,
but did not give the retirees the benefit of the favorable terms of those same agreements—such
as that the retirees always reserved their rights and that the parties would return to their
pre-litigation positions when the settlements expired. It is also important to note that the
settlements were originally between the Funds and the City, but they were imposed on the
retirees because the agreements were always understood to simply delay a judicial resolution
on the merits unless the parties could agree on an enduring solution.
¶ 45 A cause of action accrues, and the limitations period begins to run, when the party seeking
relief knows or reasonably should know of its injury and that it was wrongfully caused.
Feltmeier v. Feltmeier, 207 Ill. 2d 263, 285 (2003). Because there was never a permanent
solution and because the City did not end its healthcare coverage until January 1, 2017, the
retirees’ claims are not time-barred. Every time the City attempted to terminate the healthcare
- 10 -
plan, the retirees promptly instituted legal action and did so successfully until the City relented
and entered into a new settlement. In addition, and while the rights invoked by the retirees were
initially granted by contractual settlements, under count I of their third amended complaint, the
retirees’ claim for relief is a facial challenge to the constitutionality of the City’s action based
on the pension protection clause. The benefits are constitutionally protected from
diminishment. Any inaction on the part of the retirees was a result of the City’s inducement
through settlements and their justifiable reliance that when the settlements expired, they would
be entitled to revive their claims for coverage.
¶ 46 The Funds argue that we lack jurisdiction to consider the applicability of the 1983 and 1985
amendments to the Korshak, Window, and subclass three subclasses. This argument is based
on the fact that the trial court held that those subclasses could state a claim based on the 1983
and 1985 amendments and, therefore, denied that portion of the motions to dismiss. However,
the claims under count I of the complaint that relate to subclass four were dismissed in their
entirety, and we have jurisdiction to review the dismissal under Rule 304(a). The Korshak and
Window subclass members’ claims are essentially moot as the parties have settled. So,
subclass three remains, but our application of the law to the dispute between the City and
subclass four necessarily touches on the rights of subclass three.
¶ 47 II. Contract and Estoppel Claims (Counts II and III)
¶ 48 Aside from the constitutional claims based on the pension protection clause, the retirees
argue that they are entitled to lifetime coverage based on a contract or estoppel theory. Count II
of their third amended complaint is for common law breach of contract, and count III is for
common law estoppel. As we explained above, any person who entered the retirement system
before the 2003 settlement went into effect does have lifetime coverage under the pension
protection clause. Therefore, the only important inquiry remaining is whether the retirees are
entitled to the benefit levels they claim they are entitled to as a result of any of the remaining
theories set forth in the operative complaint.
¶ 49 The trial court dismissed the retirees’ contract claim on the basis that they failed to attach
any contract to their complaint. The trial court also indicated that the City of Chicago
Annuitant Medical Benefits Plan Handbook was insufficient to support a claim for breach of
contract because the handbook contains no promise or offer for lifetime healthcare coverage.
Moreover, and as we noted in our opinion affirming the denial of the retirees’ motion for a
preliminary injunction (Underwood, 2016 IL App (1st) 153613, ¶ 26), the handbook expressly
stated that coverage would terminate the date the Plan is terminated. There are other references
to coverage being terminated in the annuitant handbook, and the retirees cannot point to
anything in the handbook or in any other document that conveys an offer or promise that would
obligate the City to provide lifetime coverage much less to provide coverage at any particular
benefit level.
¶ 50 On appeal, the retirees focus their argument concerning their contract claim on the statute
of frauds. Seemingly backing away from previous positions that there was an oral agreement
for this lifetime contract, the retirees argue that the handbook and some other written
communications are sufficient. But again, none of these communications contractually
obligate the City to provide lifetime benefits. Indeed, since 1987, the City has had an eye
toward ending the plan and has been very careful about expressing the limitations on the
coverage it has provided. There is no documentary evidence to support the retirees’ claim for
- 11 -
healthcare coverage for life on a contractual basis and its reliance on oral assurances is
misplaced because lifetime contracts must be in writing (McInerney v. Charter Golf, Inc., 176
Ill. 2d 482, 490-91 (1997)).
¶ 51 As for the retirees’ estoppel claim, the allegations in the operative complaint itself are
wholly insufficient. But the retirees’ argument is that the City is estopped from changing or
terminating coverage because the City issued benefit handbooks and held pre-retirement
seminars. The retirees contend that the City is estopped from changing a retiree’s coverage to a
level below the highest level during a retiree’s participation in the retirement system. In order
to apply equitable estoppel against a municipality, a plaintiff must plead specific facts that
show (1) an affirmative act by either the municipality itself or an official with express authority
to bind the municipality and (2) reasonable reliance upon that act by the plaintiff that induces
the plaintiff to detrimentally change its position. Vaughn v. City of Carbondale, 2016 IL
119181, ¶ 48. The retirees have failed to plead or even support an argument with facts to
support such a claim.
¶ 52 Moreover, since we have already held that the retirees are entitled to coverage under the
amendments that remained intact, the only issue to address is the level of benefits that the
retirees claim they are entitled to because of estoppel. But the retirees point to nothing at all to
show they were promised a particular benefit level, especially for life. And any reliance on the
1989, 1997, and 2003 settlements would not be reasonable because those agreements expired
by their own terms and could not support a claim for lifetime coverage at those levels. The
retirees have also pivoted to an apparent authority theory, suggesting that because presenters at
seminars told them they would have lifetime coverage, they have a claim for estoppel. But the
retirees fail to allege how the presenters might have been authorized to bind the City to a
commitment to lifetime coverage (especially at any particular benefit level), and apparent
authority is not enough to bind a municipality; actual authority is required (Patrick
Engineering, Inc. v. City of Naperville, 2012 IL 113148, ¶ 40).
¶ 53 III. Remaining Constitutional Claims (Counts V, VI, VII)
¶ 54 The retirees interposed a claim in their third amended complaint that the City’s plan
impermissibly impairs a contract and that they have also lodged equal protection and special
legislation challenges.
¶ 55 The contracts clause provides that the government cannot pass laws that impair the
obligation of contracts. Ill. Const. 1970, art. I, § 16. To determine whether a law impermissibly
impairs a contract, we examine (1) whether there is a contractual relationship, (2) whether the
law at issue impairs that relationship, (3) whether the impairment is substantial, and (4)
whether the law serves an important public purpose. Nissan North America, Inc. v. Motor
Vehicle Review Board, 2014 IL App (1st) 123795, ¶ 37. The retirees do not develop any
argument about the dismissal of this claim in their appeal, so the claim is forfeited. Ill. S. Ct. R.
341(h)(7) (eff. Jan. 1, 2016) (points not argued on appeal are forfeited). The contracts clause
does not fit the case. For one example, the contract between the parties—the settlements at
issue—expired by their own terms, not any government action. Anyhow, as pled, the claim
fails because the allegations, if proved, would be insufficient to support a claim for any
violation of the contracts clause. The retirees cannot state a claim on count V of the third
amended complaint.
- 12 -
¶ 56 As for the retirees’ equal protection and special legislation challenges, those types of
challenges are judged by the same standard. General Motors Corp. v. State of Illinois Motor
Vehicle Review Board, 224 Ill. 2d 1, 30-31 (2007). Both focus on whether a law treats similarly
situated individuals differently. Id. The constitutional guarantee of equal protection requires
that the government treat similarly situated individuals in a similar manner. American
Federation of State, County, & Municipal Employees (AFSCME), Council 31 v. State, 2015 IL
App (1st) 133454, ¶ 30. Similarly, the Illinois Constitution provides that the General Assembly
cannot pass special laws when a general law is or can be made applicable. Id. ¶ 31; Ill. Const.
1970, art. IV, § 13. This means that the General Assembly is prohibited from passing laws that
confer a special benefit on a select group to the exclusion of others that are similarly situated.
Best v. Taylor Machine Works, 179 Ill. 2d 367, 391 (1997).
¶ 57 The retirees argue that the City’s plan violates the constitution because it discriminates
among retirees based on when they retire. That claim, however, has nothing to do with the
benefit levels themselves and, because of our holding on the pension protection clause issue,
the level of benefits is the retirees’ only outstanding grievance. Our holding on other issues
results in none of the retirees being treated differently based on the date of retirement—they
are all entitled to the same fixed-rate subsidy based on when they entered the retirement
system. Therefore, the retirees cannot state a claim on count VI or VII of the third amended
complaint. As we have noted, the City has agreed separately to fund some portion of the
Korshak and Window subclass members’ healthcare coverage. This opinion merely speaks to
what the City is constitutionally obligated to provide. It, of course, may provide other benefits
by agreement, as it did for a number of years under the 1989, 1997, and 2003 time-limited
settlements.
¶ 58 IV. Injunctive Relief
¶ 59 The retirees include arguments about injunctive relief in their brief on appeal. They were
attempting to preserve the status quo at the end of 2016, so that the City’s plan to terminate
coverage entirely could not go into effect. We addressed the retirees’ requests for injunctive
relief on motion3 and, because the end of 2016 has already arrived, the retirees’ request for
injunctive relief is moot. Moseley v. Goldstone, 89 Ill. App. 3d 360, 365-66 (1980).
¶ 60 CONCLUSION
¶ 61 To summarize our holding, the settlements that held the 1987 Korshak litigation in
abeyance from 1989 until 2013 have no enduring effect. The pension protection clause does
not protect any term of those settlements because the settlements expired by their own terms as
the parties agreed upon. However, the pension protection clause locked in the 1983 and 1985
fixed-rate subsidies for any employee who began participating in the system by the time the
2003 settlement was executed. Up until that point, all annuitants retained the rights that an
annuitant had before the 1987 litigation began. Among those rights was the right to a fixed-rate
subsidy that, under the Illinois Constitution, cannot be diminished or impaired for those
employees already in the system.
¶ 62 Therefore, we agree with the trial court that the members of subclass three can state a claim
on count I based on the 1983 and 1985 amendments, but we hold that the members of subclass
3
On December 7, 2016, we denied the retirees’ motion for an injunction.
- 13 -
four that began participating in the retirement system before the 2003 settlement became
operative also have a claim under count I.
¶ 63 None of the retirees have a right to lifetime coverage based on contract, estoppel, or any
constitutional theory other than the pension protection clause. Similarly, none of those other
theories entitle the retirees to a benefit level greater than that provided by the 1983 and 1985
amendments.
¶ 64 On remand, the court will have to find a workable solution to address how the subsidy will
be funded as the court already indicated it would do for subclass three under the 1983 and 1985
amendments. Now, the court will need to include any participant in the system before the 2003
settlement was executed into that matrix in accordance with this opinion.
¶ 65 The result here will predictably leave both sides unhappy. The retirees have intimated that
the 1983 and 1985 fixed-rate subsidies are insufficient because the amount of the benefit
covers little of their ever-rising healthcare premiums. On the other hand, the City has been
boastful of its heretofore success in eliminating the retiree healthcare plan altogether, and its
interest in the badly-needed financial savings from eliminating the program is legitimate.
However, after 30 years of litigation and millions of dollars spent, the result compelled by the
application of our constitution, statutes, and precedent is that the retirees are entitled to lifetime
healthcare coverage, albeit at modest levels—a result that should, but unlikely will, put an end
to hostilities.
¶ 66 Accordingly, we affirm all but the trial court’s ruling that the members of subclass four
have no claim whatsoever under count I. Instead, we hold that any retiree that began
participating in the system before the 2003 settlement was executed has a claim for relief based
on the 1983 and 1985 amendments by operation of the pension protection clause.
¶ 67 Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion.
- 14 -