Michael Underwood v. City of Chicago, 2015 U.S. App. LEXIS 3009

Background

Since 1982 Chicago provided free or subsidized health care to certain retirees (police, fire, etc.); the 2003 ordinance creating those benefits included a 10‑year sunset and expired in June 2013.
City notified retirees that their contributions for medical coverage would increase in 2014; retirees sued in Illinois state court alleging constitutional protections for their health benefits.
Plaintiffs relied on the Illinois Constitution’s Pensions Clause (Art. XIII §5) and also pleaded a federal Contracts Clause claim, which permitted removal to federal court.
District court dismissed: held the Pensions Clause did not apply to health care and the federal Contracts Clause claim failed on the merits.
While on appeal the Illinois Supreme Court held the Pensions Clause can apply to health benefits (Kanerva), creating unresolved state‑law questions about what counts as a protected “benefit” and whether time‑limited promises vest for life.
The Seventh Circuit resolved the federal claims and remanded the state‑law claims to state court under 28 U.S.C. §1367(c), vacating the district court’s judgment on supplemental‑jurisdiction grounds.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does the Pensions Clause automatically vest health benefits for life regardless of terms?	Pension membership creates an enforceable contractual relationship that prevents diminution of any health benefits, so benefits cannot be rescinded even if originally time‑limited.	The Clause makes membership contractual but does not override the explicit terms establishing benefit duration; health benefits vest only if contract law shows a lifetime promise.	Court declined to decide novel state‑law question and remanded state claims to state court for resolution.
What benefits does the Pensions Clause protect (amount of subsidy vs. level of care)?	Clause protects in‑kind benefits (e.g., specific medical care) regardless of employer cost.	Clause protects the promised contribution/subsidy amount, not a guaranteed quantum of medical care.	Court noted uncertainty on this point (Kanerva suggests protection of contributions) and left it for state court to resolve.
Does the federal Contracts Clause provide an independent federal claim against the City?	Plaintiffs say state statutes or local actions impaired contractual rights to health benefits, violating the Contracts Clause.	City says Contracts Clause bars state laws that impair obligations; plaintiffs sued wrong party for state statutes and identified no municipal legislation that impaired contracts.	Held: Contracts Clause claim fails — plaintiffs identified no legislative impairment by Chicago; federal claim dismissed.
Do federal takings principles keep the case in federal court?	Plaintiffs suggested benefits cuts could amount to a taking requiring federal relief.	City and court noted takings claims require ripeness and state compensation remedies; unripe takings belong in state court first.	Held: Takings argument was unbriefed and unripe; such claims do not keep the case in federal court.

Key Cases Cited

M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015) (ordinary contract law determines whether employer‑provided health benefits vest for life)
General Motors Corp. v. Romein, 503 U.S. 181 (1992) (Contracts Clause protects preexisting contractual obligations from state impairment)
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978) (invalidated state law that substantially impaired contractual obligations)
St. Paul Gas Light Co. v. St. Paul, 181 U.S. 142 (1901) (distinguishes legislative impairment from contractual breach)
E&E Hauling, Inc. v. Forest Preserve Dist. of Du Page County, 613 F.2d 675 (7th Cir. 1980) (legislation can breach contracts without constituting a Contracts Clause impairment)
Jackson Sawmill Co. v. United States, 580 F.2d 302 (8th Cir. 1978) (statute breaching a contract does not necessarily violate the Contracts Clause)
Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985) (ripeness requirement for federal takings claims)
Mid‑American Waste Systems, Inc. v. Gary, 49 F.3d 286 (7th Cir. 1995) (federal courts may decline supplemental jurisdiction when state law issues predominate)
Simmons v. Gillespie, 712 F.3d 1041 (7th Cir. 2013) (availability of state remedies relevant when federal jurisdiction is questioned)
Kay v. Chicago Board of Education, 547 F.3d 736 (7th Cir. 2008) (state‑law remedies can preserve contract‑type rights even when federal relief is unavailable)