No. 117638 in the SUPREME COURT of ILLINOIS JERRY

No. 117638

IN THE SUPREME COURT OF ILLINOIS

JERRY MATTHEWS, JERRY WILLIAMS, TOMMY SAMS, CYNTHIA BOYNE, and CHARLES BROWN, individually and on behalf of all others similarly situated,

Plaintiffs-Appellees,

v .

THE CHICAGO TRANSIT AUTHORITY, a municipal corporation; RETIREMENT PLAN FOR CHICAGO TRANSIT AUTHORITY EMPLOYEES; BOARD OF TRUSTEES OF THE RETIREMENT PLAN FOR CHICAGO TRANSIT AUTHORITY EMPLOYEES; RETIREE HEALTH CARE TRUST; and BOARD OF TRUSTEES OF THE RETIREE HEALTH CARE TRUST,

Defendants-Appellants.

On Appeal from the Appellate Court of Illinois First Judicial District, No. 1-12-3348 There Heard on Appeal from the Circuit Court of Cook County, Illinois County Department, Chancery Division, No. 11 CH 15446 The Honorable Franklin U. Valderamma, Judge Presiding

AMICUS CURIAE BRIEF OF THE ILLINOIS MUNICIPAL LEAGUE AND THE CITY OF CHICAGO

STEPHEN R. PATTON Corporation Counsel of the City of Chicago BENNA RUTH SOLOMON JANE ELINOR NOTZ Deputy Corporation Counsel ROGER HUEBNER MYRIAM ZRECZNY KASPER Deputy Executive Director Chief Assistant Corporation Counsel and General Counsel SARA K. HORNSTRA Illinois Municipal League Assistant Corporation Counsel 500 East Capitol Avenue 30 North LaSalle Street, Room 800 Springfield, Illinois 62701 Chicago, Illinois 60602 (217) 525-1220 (312) 744-7764 POINTS AND AUTHORITIES ______Page(s)

ARGUMENT...... 3

I. CONCLUSORY ALLEGATIONS OF PROMISES BY UNNAMED EMPLOYEES AND PAST ACTIONS UNDERTAKEN WITHOUT ASSURANCE THEY WILL CONTINUE ARE INSUFFICIENT TO STATE AN ESTOPPEL CLAIM AGAINST A MUNICIPALITY...... 3

Hickey v. Illinois Central Railroad Company, 35 Ill. 2d 427 (1966)...... 3, 4

Patrick Engineering, Inc. v. City of Naperville, 2012 IL 113148...... 3, 4, 5

LaBolle v. Metropolitan Sanitary District, 253 Ill. App. 3d 269 (1st Dist. 1992)...... 3, 5

Halleck v. County of Cook, 264 Ill. App. 3d 887 (1st Dist. 1994)...... 3

Jack Bradley, Inc. v. Department of Employment Security, 146 Ill. 2d 61 (1991)...... 3

Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 223 Ill. 2d 46 (2009)...... 5

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 5, 6

A. Plaintiffs Failed To Plead Promissory Estoppel With The Specificity Required For An Estoppel Claim Against A Public Body...... 6

Patrick Engineering, Inc. v. City of Naperville, 2012 IL 113148...... 7, 8

740 ILCS 80/1 (2014)...... 9

McInerney v. Charter Golf, Inc., 176 Ill. 2d 482 (1997)...... 9

ii Ozier v. Haines, 411 Ill. 160 (1952)...... 9

Sinclair v. Sullivan Chevrolet Co., 31 Ill. 2d 507 (1964)...... 9

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 9

B. Estoppel Does Not Preclude A Municipality From Departing From A Prior Course Of Conduct Absent Express Assurances That The Conduct Will Continue..1 0

1. A course of conduct is not equivalent to a promise the conduct will continue...... 1 0

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 1 0

Carey v. City of Rockford, 134 Ill. App. 3d 217 (2d Dist. 1985)...... 11, 13

City of Chicago v. Unit One Corporation, 218 Ill. App. 3d 242 (1st Dist. 1991)...... 1 1

LaSalle National Bank v. City of Chicago, 128 Ill. App. 3d 656 (1st Dist. 1984)...... 1 1

Eisele v. Ayers, 63 Ill. App. 3d 1039 (1st Dist. 1978)...... 11, 12

Chicago Limousine Service, Inc. v. City of Chicago, 335 Ill. App. 3d 489 (1st Dist. 2002)...... 1 2

Village of B ellwood v. American National Bank & Trust Company of Chicago, 2011 IL App (1st) 093115...... 1 3

2. A course of conduct is not by itself an affirmative act of the municipality...... 1 3

McMahon v. City of Chicago, 339 Ill. App. 3d 41 (1st Dist. 2003)...... 1 4

iii Ad-Ex. Inc. v. City of Chicago, 207 Ill. App. 3d 163 (1st Dist. 1990)...... 1 4

Lindahl v. City of Des Plaines, 210 Ill. App. 3d 281 (1st Dist. 1991)...... 14, 15

Chicago Patrolmen’s Association v. City of Chicago, 56 Ill. 2d 503 (1974)...... 1 4

Schivarelli v. Chicago Transit Authority, 355 Ill. App. 3d 93 (1st Dist. 2005)...... 1 5

3. Estoppel does not protect against the loss of an advantage that a party had no right to receive in the first place...... 1 6

City of Chicago v. Unit One Corporation, 218 Ill. App. 3d 242 (1st Dist. 1991)...... 16, 17

Tyska v. Board of Education Township High School District 224, 117 Ill. App. 3d 917 (1st Dist. 1983)...... 1 7

McAdams v. Scullin, 53 Ill. App. 3d 374 (5th Dist. 1977)...... 1 7

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 1 7

II. A HOLDING THAT RETIREE HEALTH CARE BENEFITS CONFERRED UNDER A CBA ARE PRESUMPTIVELY VESTED WOULD BE INCONSISTENT WITH THE GREAT WEIGHT OF AUTHORITY, INCLUDING ORDINARY CONTRACT INTERPRETATION PRINCIPLES...... 1 8

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 18, 19

Marconi v. City of Joliet, 2013 IL App (3d) 110865...... 1 9

iv A. The Presumption Applied By The Appellate Court Is Out Of Step With The Federal Courts And Other State Courts...... 2 0

Haake v. Board of Education, 399 Ill. App. 3d 121 (2d Dist. 2010)...... 2 0

Marconi v. City of Joliet, 2013 IL App (3d) 110865...... passim

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 2 0

Cherry v. Auburn Gear, Inc., 441 F.3d 476 (7th Cir. 2006)...... 2 0

Bland v. Fiatallis North America, Inc., 401 F.3d 779 (7th Cir. 2005)...... 20, 22

Rossetto v. Pabst Brewing Co., 217 F.3d 539 (7th Cir. 2000)...... 2 0

Roth v. City of Glendale, 614 N.W.2d 467 (Wis. 2000)...... 2 0

Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993)...... 2 0

UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983)...... 20, 21

Litton Financial Printing Division v. National Labor Relations Board, 501 U.S. 190 (1991)...... 2 1

John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964)...... 2 1

UAW v. Skinner Engine Co., 188 F.3d 130 (3d Cir. 1999)...... 21, 22, 25

Joyce v. Curtiss-Wright Corp., 171 F.3d 130 (2d Cir. 1999)...... 2 1

v Lewis v. Allegheny Ludlum Corp., 2011 WL 6440873 (No. 11-2517, N.D. Ohio Dec. 21, 2011)...... 2 2

American Federation of Grain Millers, AFL-CIO v. Int’l Multifoods Corp., 116 F.3d 976 (2d Cir. 1997)...... 2 2

Senior v. NSTAR Electric and Gas Corp., 449 F.3d 206 (1st Cir. 2006)...... 23, 25

Anderson v. Alpha Portland Industries, Inc., 836 F.2d 1512 (8th Cir. 1988)...... 2 3

Gable v. Sweetheart Cup Co., 35 F.3d 851 (4th Cir. 1994)...... 2 3

Wise v. El Paso Natural Gas Co., 986 F.2d 929 (5th Cir. 1993)...... 2 3

Tackett v. M&G Polymers USA, LLC, 733 F.3d 589 (6th Cir. 2013)...... 2 3

Municipality of Anchorage v. Gentile, 922 P.2d 248 (Alaska 1996)...... 2 4

Poole v. City of Waterbury, 831 A.2d 211 (Conn. 2003)...... 2 4

Anderson v. Town of Smithfield, 2005 WL 3481627 (R.I. Super. Ct. Dec. 20, 2005)...... 24, 26

Davis v. Wilson County, 70 S.W.3d 724 (Tenn. 2002)...... 24, 26

Navlet v. Port of Seattle, 194 P.3d 221 (Wash. 2008)...... 2 4

Washington Education Association v. Washington Dept. of Retirement Systems, 332 P.3d 439 (Wash. 2014)...... 2 4

Moore v. Metropolitan Life Insurance Co., 856 F.2d 488 (2d Cir. 1988)...... 2 5

vi Inter-Modal Rail Employees Ass’n v. Atchison, Topeka & Santa Fe Ry., 520 U.S. 510 (1997)...... 2 5

Coram v. State, 2013 IL 113867...... 2 6

American Federation of State, County, and Municipal Employees v. Illinois State Labor Relations Board, 216 Ill. 2d 569 (2005)...... 2 6

Reese v. CNH America LLC, 574 F.3d 315 (6th Cir. 2009)...... 2 6

Maurer v. Joy Technologies, Inc., 212 F.3d 907 (6th Cir. 2000)...... 2 6

B. A Presumption In Favor Of Vesting Is Contrary To Ordinary Principles Of Contract Law And Is Otherwise Unjustified...... 2 7

Thompson v. Gordon, 241 Ill. 2d 428 (2011)...... 27, 29

Air Safety, Inc. v. Teachers Realty Corp., 185 Ill. 2d 457 (1999)...... 2 7

Gallagher v. Lenart, 226 Ill. 2d 208 (2007)...... 27, 31

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010)...... 2 7

Bland v. Fiatallis North America, Inc., 401 F.3d 779 (7th Cir. 2005)...... 2 7

Woods v. City of Berwyn, 2014 IL App (1st) 133450...... 2 7

Truck Drivers, Oil Drivers, Filling Station and Platform Workers’ Union Local 705 v. Schneider Tank Lines, 958 F.2d 171 (7th Cir. 1992)...... 2 7

Matthews v. Chicago Transit Authority, 2014 IL App (1st) 123348...... 27, 28, 30, 31

vii Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993)...... 28, 31

John T. Doyle Trust v. Country Mutual Insurance Co., 2014 IL App (2d) 121238...... 2 9

Howe v. Varity Corp., 896 F.2d 1107 (8th Cir. 1990)...... 2 9

UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983)...... 3 0

29 U.S.C. § 1181...... 3 0

29 U.S.C. § 1182...... 3 0

Pub. L. No. 111-148...... 3 0

124 Stat. 119 (2010)...... 3 0

Moore v. Metropolitan Life Insurance Co., 856 F.2d 488 (2d Cir. 1988)...... 3 2

Kanerva v. Weems, 2014 IL 115811...... 3 2

CONCLUSION ...... 3 4

viii INTEREST OF THE AMICUS CURIAE ______

The Illinois Municipal League is a not-for-profit, non-political association of 1,121 municipalities in the State of Illinois. State statute designates the League as the instrumentality of its members. See 65 ILCS

5/1-8-1. The League’s mission is to articulate, defend, maintain, and promote the interests and concerns of Illinois municipalities. The City of Chicago is the largest municipality in the State of Illinois and is a member of the

League.

The League regularly files amicus curiae briefs in cases that present questions of interest and concern to the League’s members. Cases in which the League has participated as amicus curiae that raised questions pertaining to municipal pensions, specifically, include Village of Vernon Hills v. Hellan, 2014 IL App (2d) 130823; Board of Trustees of the Riverdale Police

Pension Fund v. Village of Riverdale, 2014 IL App (1st) 130416; Pedersen v.

Village of Hoffman Estates, 2014 IL App (1st) 123402; Gaffney v. Orland Fire

Protection District and Lemmenes v. Orland Fire Protection District, 2012 IL

110012 (consolidated); Nowak v. City of Country Club Hills, 2011 IL 111838;

Marconi v. City of Chicago Heights, 225 Ill. 2d 497 (2006); Turcol v. Pension

Board of Trustees of Matteson Police Pension Fund, 214 Ill. 2d 521 (2005); and Krohe v. City of Bloomington, 204 Ill. 2d 392 (2003).

The League and its member communities have a specific interest in the outcome of this appeal because the questions presented include two issues that implicate the effective functioning of municipal governments.

First, plaintiffs’ promissory estoppel claim, if allowed to go forward, would work a substantial change in the law of estoppel as applied to municipal corporations by holding municipalities accountable to defend against allegations of promises made by unnamed employees and of prior actions undertaken without any assurance that they will continue in the future.

Second, the holding of the appellate court below that there is a “presumption of vesting” of retiree health care benefits conferred by a collective bargaining agreement in cases where the agreement does not affirmatively provide otherwise threatens to judicially bind any public entity that has provided for such benefits in a collective bargaining agreement to substantial and unintended financial obligations.

ISSUES PRESENTED ______

This brief amicus curiae addresses the following issues:

1. Whether, as the Illinois Appellate Court held, plaintiffs stated a promissory estoppel claim against the Chicago Transit Authority (“CTA”), a municipal corporation, where plaintiffs alleged merely that the CTA made

“numerous unambiguous promises” regarding retiree health care benefits on which plaintiffs relied to their detriment, and that the CTA paid for retiree health care benefits in the past.

2. Whether, as the Illinois Appellate Court held, in contravention of the great weight of authority and ordinary contract principles, there is a

2 “presumption of vesting” of retiree health care benefits conferred by a collective bargaining agreement (“CBA”) – in other words, that retirees are entitled to continued benefits even after the agreement expires by its own terms – in all cases where the agreement does not expressly provide otherwise.

ARGUMENT

I. CONCLUSORY ALLEGATIONS OF PROMISES BY UNNAMED EMPLOYEES AND PAST ACTIONS UNDERTAKEN WITHOUT ASSURANCE THEY WILL CONTINUE ARE INSUFFICIENT TO STATE AN ESTOPPEL CLAIM AGAINST A MUNICIPALITY.

“Ordinary” estoppel principles “do not apply to public bodies.” Hickey v. Illinois Central Railroad Co., 35 Ill. 2d 427, 447 (1966). In particular, estoppel against a public body is disfavored and should be invoked only “in extraordinary and compelling circumstances.” Patrick Engineering, Inc. v.

City of Naperville, 2012 IL 113148, ¶ 35. As a result, courts should be

“reluctant to grant estoppel against a governmental body.” LaBolle v.

Metropolitan Sanitary District, 253 Ill. App. 3d 269, 274 (1st Dist. 1992).

This is especially true where, as here, taxpayer funds are at stake. See

Halleck v. County of Cook, 264 Ill. App. 3d 887, 891 (1st Dist. 1994)

(“estoppel against a public body is especially prohibited when public revenues are involved”) (citing Jack Bradley, Inc. v. Department of Employment

Security, 146 Ill. 2d 61, 81 (1991)). There are sound policy reasons for this rule: applying estoppel against a public body may “impair . . . the discharge

3 of its government functions,” and “valuable public interests may be jeopardized or lost by the negligence, mistakes or inattention of public officials.” Hickey, 35 Ill. 2d at 447-48.

The requirement of “extraordinary and compelling” circumstances before estoppel is allowed against a public body creates both substantive and procedural limitations on the use of estoppel against a municipal corporation such as the CTA. As we explain, these limitations exist to protect the municipality’s residents and taxpayers from the actions of municipal employees who might be in a position to spend money beyond the municipality’s budget, or based on favoritism or even dishonesty.

First, a party seeking to invoke estoppel against a municipality faces heightened substantive requirements. The municipality must have engaged in an “affirmative act” that induced substantial and reasonable reliance by the party asserting estoppel. Patrick Engineering, 2012 IL 113148, ¶ 39.

Critically, the affirmative act must be an act of the municipality itself, “such as legislation, or an act by an official with express authority to bind the municipality,” rather than the unauthorized act of a ministerial officer. Id.

Additionally, the party asserting estoppel must have “substantially” and

“justifiably” changed its position in reliance on the municipality’s conduct, including by undertaking an “inquiry into the municipal official’s authority.”

4 Id.1

Not only are the substantive requirements for estoppel heightened against a public body, but so, too, are the procedural requirements. Both because “Illinois is a fact-pleading jurisdiction,” and because estoppel is

“especially disfavored” “when public revenues are at stake,” the party claiming estoppel must plead “specific facts” that show each of the substantive elements. Patrick Engineering, 2012 IL 113148, ¶ 40. “[M]ere conclusions” will not survive a motion to dismiss a claim asserting estoppel against a municipality. Id.

The appellate court below acknowledged the heightened requirements for pleading and proving estoppel against a municipality, see Matthews v.

Chicago Transit Authority, 2014 IL App (1st) 123348, ¶ 137, but then gave these requirements mere lip service. Instead of holding plaintiffs to the obligation to plead “specific facts” to show each element of estoppel, including an affirmative act by the CTA itself that induced substantial reliance on

1 In Patrick Engineering, this court described the criteria for allowing equitable estoppel against a municipality. See 2012 IL 113148, ¶¶ 39-40. Equitable estoppel generally is available only as a defense. See Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 223 Ill. 2d 46, 56 (2009). Plaintiffs here plead promissory estoppel as an affirmative theory of recovery. See Complaint ¶¶ 88-92; see also Newton, 233 Ill. 2d at 56 (although equitable estoppel “is available only as a defense,” “promissory estoppel can be used as the basis of a cause of action for damages”) (internal quotation marks omitted). The appellate court has held that the traditional reluctance to apply estoppel against a public body, as well as the substantive requirements of an affirmative act by the public body itself that induces detrimental reliance by a private party, is equally applicable to promissory estoppel as to equitable estoppel. See LaBolle, 253 Ill. App. 3d at 274.

5 plaintiffs’ part, the appellate court held that plaintiffs stated a promissory estoppel claim based on allegations that the CTA made “numerous unambiguous promises” regarding retiree health care benefits on which plaintiffs relied to their detriment, and that the CTA paid for retiree health care benefits in the past without being contractually obliged to do so. See id.; see also id. ¶ 86 (plaintiffs’ allegations that CTA “continued to pay for retiree health care until 2009,” even though it had no contractual or statutory obligation to do so, stated claim for promissory estoppel). We now explain that the appellate court’s holding is incorrect and should be reversed, because plaintiffs’ promissory estoppel claim against the CTA is both procedurally and substantively inadequate.

A. Plaintiffs Failed To Plead Promissory Estoppel With The Specificity Required For An Estoppel Claim Against A Public Body.

First, plaintiffs’ allegations are procedurally inadequate. Although the plaintiffs alleged that the CTA made “unambiguous promises” to them about the health care benefits they would receive as retirees (specifically, they pled that their benefits would be “fully paid,” “identical to those enjoyed by active

CTA members,” “changed only by a method prescribed in a CBA,” and not changed “without consideration . . . in exchange,” Complaint ¶ 89), plaintiffs’ complaint is silent regarding three critical factors: first, the complaint does not specify who made the alleged promises or the basis for their authority to bind the CTA (or what plaintiffs did to discover that authority); second, there

6 are no allegations explaining the basis for plaintiffs’ belief that the alleged promises were to provide retiree health care benefits for all time; third, there are no allegations that the alleged promises were in writing, which is necessary to avoid application of the Statute of Frauds. The appellate court’s holding that plaintiffs stated a claim for promissory estoppel in these circumstances therefore is inconsistent with Patrick Engineering.

In Patrick Engineering, this court affirmed the dismissal of the plaintiff’s complaint, which invoked equitable estoppel to claim payment for work the plaintiff had performed, allegedly pursuant to an oral agreement with municipal officials. The court explained that the plaintiff’s complaint lacked “specific facts to support the application of equitable estoppel.” 2012

IL 113148, ¶ 52. In particular, the complaint lacked allegations that the municipal officials “possessed express authority to informally approve” the work, and that the officials’ alleged approvals were sufficiently detailed and unconditional to make the plaintiff’s reliance on them reasonable. Id. ¶¶ 41-

44. The court further explained that although agency and reliance “are typically questions of fact,” the heightened requirements for pleading estoppel against a municipality require specific allegations on each of these elements to survive a motion to dismiss. Id. ¶ 40. With regard to agency, in particular, the court acknowledged that the plaintiff might be forced without the benefit of discovery “to present allegations of express authority upon information and belief”; in these circumstances, the plaintiff must include

7 allegations about “any efforts taken [by plaintiff] to determine the extent of the authority of the municipal official or officials involved.” Id.

Patrick Engineering dooms plaintiffs’ promissory estoppel claim, as the appellate court below should have recognized. As we have explained, estoppel requires an affirmative act by the public body itself that reasonably and justifiably induces substantial, detrimental reliance. Without allegations that the promises were made by the CTA itself (such as by legislation) or by an individual with express authority to bind the CTA (or about what plaintiffs did to ascertain that individual’s authority), plaintiffs’ complaint lacks the required specific allegations of an affirmative act by the

CTA. In addition, without allegations regarding the scope and duration of the alleged promises, the complaint lacks the details necessary to establish that plaintiffs’ expectation that they would receive retiree health care benefits for all time was reasonable.

Not only does plaintiffs’ complaint lack critical facts regarding the source of the alleged promises of health care benefits, as well as the scope and duration of those promises, but plaintiffs failed to plead that the promises were made in writing. Without allegations of a written promise, plaintiffs’ promissory estoppel claim is barred by the Illinois Statute of

Frauds. That statute provides that “[n]o action shall be brought . . . upon any agreement that is not to be performed within the space of one year from the making therefore, unless . . . in writing, and signed by the party to be

8 charged therewith, or some other person thereunto by him lawfully authorized.” 740 ILCS 80/1.

Thus, in McInerney v. Charter Golf, Inc., 176 Ill. 2d 482 (1997), this court held that the Statute of Frauds precluded the plaintiff from relying on promissory estoppel to enforce an alleged oral agreement for lifetime employment. As the court explained, a promise of employment for life

“[i]nherently . . . anticipates a relationship of long duration – certainly longer than one year,” and, accordingly, “a writing is required for the fair enforcement of lifetime employment contracts.” Id. at 490-91. The court further held that the plaintiff could not rely on a promissory estoppel theory to avoid the Statute of Frauds. See id. at 492 (“promissory estoppel does not bar the application of the statute of frauds”) (citing Ozier v. Haines, 411 Ill.

160 (1952), and Sinclair v. Sullivan Chevrolet Co., 31 Ill. 2d 507 (1964)).

Plaintiffs’ claim for lifetime health care benefits similarly cannot be performed within one year. Accordingly, plaintiffs were required to plead that promises allegedly made to them were in writing.

Perhaps recognizing that plaintiffs’ bare-bones allegations about

“numerous promises” by unnamed employees could not themselves state a claim for promissory estoppel against a municipality, the appellate court twice made reference to the allegations that the CTA had paid for retiree health care benefits in the past. 2014 IL App (1st) 123348, ¶¶ 86, 138. We now explain that, as a matter of law, these allegations of prior conduct alone,

9 without assurances that the conduct would continue, cannot sustain a promissory estoppel claim.

B. Estoppel Does Not Preclude A Municipality From Departing From A Prior Course Of Conduct Absent Express Assurances That The Conduct Will Continue.

The appellate court’s holding that plaintiffs’ allegations that the CTA paid for retiree healthcare in the past state a claim for promissory estoppel is incorrect, for at least three independent reasons.

1. A course of conduct is not equivalent to a promise the conduct will continue.

First, a course of conduct, absent assurances that the conduct will continue in the future, is not an affirmative act that induces reasonable reliance and thus satisfies the prerequisites for estoppel. Here, plaintiffs alleged that “the CTA began providing fully-paid retiree health care benefits in 1980, and continued to provide those benefits until July 2009.” Complaint

¶ 27. The appellate court seized on this allegation to hold that plaintiffs stated a promissory estoppel claim against the CTA. 2014 IL App (1st)

123348, ¶¶ 86, 138. Absent from plaintiffs’ complaint, however, is a specific allegation that the CTA promised that it would continue to pay for retiree health benefits for all time. The CTA’s alleged prior conduct cannot cure this absence, because a past practice of paying for retiree health benefits is not equivalent to an unambiguous promise to pay for these benefits into perpetuity.

10 “The party who asserts the existence of estoppel has the burden of proving it by clear, precise, and unequivocal evidence.” Carey v. City of

Rockford, 134 Ill. App. 3d 217, 219 (2d Dist. 1985). Moreover, the mere passage of time does not itself “provide the compelling circumstances that justify application of the estoppel doctrine” against a public body. City of

Chicago v. Unit One Corp., 218 Ill. App. 3d 242, 246-46 (1st Dist. 1991); accord LaSalle National Bank v. City of Chicago, 128 Ill. App. 3d 656, 662

(1st Dist. 1984) (when applying estoppel to a municipality, “the courts will not decide the question by mere lapse of time”). Applying these principles, it is clear that whether the CTA paid for retiree health care for one year or thirty (assuming that the CTA paid at all), the fact of the CTA’s past payments is not alone evidence of the clear and unequivocal promise to continue those payments in the future that would be required to bind the

CTA.

Illinois decisions confirm this point. In Eisele v. Ayers, 63 Ill. App. 3d

1039 (1st Dist. 1978), the appellate court rejected the argument that allegations about a private party’s past conduct – absent an affirmative promise that the party would continue the conduct in the future – were sufficient to state a promissory estoppel claim. The plaintiffs, who were second- and third-year medical students at Northwestern University, sought to estop the University from imposing tuition increases “greater than the average increase imposed over the past decade.” Id. at 1042. As alleged in

11 the complaint, the University had announced an increase that was 57.6% more than the previous year’s tuition and seven times greater than the past average increase. See id. at 1041-42. Notwithstanding the students’ disappointed expectations and associated financial loss, the court affirmed the dismissal of their promissory estoppel claim, explaining that the

University had “made no promise to limit future tuition increases to the amount by which it was raised in previous years,” and the University’s prior course of conduct could not alone establish promissory estoppel. Id. at 1045.

Similarly, in Chicago Limousine Service, Inc. v. City of Chicago, 335

Ill. App. 3d 489 (1st Dist. 2002), the appellate court held that estoppel did not preclude a municipality from amending its livery ordinance to increase the number of livery licenses available, even though the plaintiff, a livery service operator, had allegedly made substantial investments in its operations in reliance on the pre-existing cap and suffered meaningful losses because additional licenses issued. See id. at 499. The court explained that “[t]here was no indication in the [pre-amendment] ordinance that the amount of licenses, or the procedure for increasing the amount, would remain the same forever, or even that they would remain the same for an extended period of time.” Id. at 500. Under these circumstances, the plaintiff could not show that the municipality had made “an unambiguous promise” not to increase the number of licenses, and, accordingly, the plaintiff could not state a claim for promissory estoppel. Id. at 499-500.

12 Thus, estoppel principles do not preclude a municipality from changing or even reversing a prior course of conduct, absent a promise that the conduct will continue. See also, e.g., Village of Bellwood v. American National Bank

& Trust Company of Chicago, 2011 IL App (1st) 093115, ¶ 32; see also id. ¶

41 (Cunningham, J., specially concurring) (municipality’s agreement with property owner regarding purchase price and terms of taking did not estop municipality from abandoning eminent domain proceedings, even though owner had expended significant sums – not all of which could be recovered – in reliance on agreement, because Illinois law allows a municipality to abandon eminent domain proceedings prior to taking possession of property);

Carey, 134 Ill. App. 3d at 219-221 (plaintiff’s reliance on city employer’s payment for another employee’s operation did not require city to pay for plaintiff’s similar operation, where city did not represent to plaintiff that it would pay and city’s payment for other employee’s operation was error).

Indeed, the appellate court’s contrary rule – which threatens to bind municipalities to prior practices, no matter how ill-considered the practice or extravagant the cost to taxpayers – is inconsistent with not only estoppel principles but also the public interest in the effective functioning of municipal government.

2. A course of conduct is not by itself an affirmative act of the municipality.

Second, a prior course of conduct cannot bind a municipality without evidence that the municipality itself approved the conduct. In Illinois,

13 “‘[m]unicipalities are limited to only those powers which are given to them by constitution and statute.’” McMahon v. City of Chicago, 339 Ill. App. 3d 41,

45 (1st Dist. 2003) (quoting Ad-Ex. Inc. v. City of Chicago, 207 Ill. App. 3d

163, 169 (1st Dist. 1990)). And, under the Illinois Municipal Code, “[a] municipal employee is not entitled to additional compensation or benefits absent an express authorization and appropriation by ordinance.” Lindahl v.

City of Des Plaines, 210 Ill. App. 3d 281, 294 (1st Dist. 1991). “Everyone is presumed to know” this limitation on the powers of a municipal corporation.

Id. at 290-91 (internal quotation marks omitted).

Applying this principle, Illinois courts have repeatedly declined to hold municipal corporations to promises of additional compensation, where the municipality itself did not approve the promised compensation. Thus, in

Chicago Patrolmen’s Association v. City of Chicago, 56 Ill. 2d 503 (1974), this court denied the plaintiffs, who were police officers, salary increases because such compensation was not provided for in the City’s appropriations ordinance. See id. at 506-08. The fact that the Police Superintendent allegedly had promised the increases neither contractually bound the City nor worked an estoppel, both because the Superintendent “did not fix the salary of police officers,” and because knowledge of the strictures of municipal contracting was imputed to the plaintiffs, making any reliance on the

Superintendent’s representations unreasonable. Id. at 507-08. Similarly, in

Lindahl, the appellate court held that the oral and written representations by

14 the plaintiff’s supervisor that the plaintiff would receive paid overtime neither imposed a contractual duty on the municipality nor worked an estoppel, because “the representations of plaintiff’s supervisor were not acts of the City of Des Plaines itself,” and knowledge of this limitation on the

City’s authority to contract was imputed to the plaintiff. See 210 Ill. App. 3d at 285, 296.

Illinois courts have applied this principle to hold that a municipality’s prior payments, absent express authorization by the municipality for those payments, did not bind the municipality to continue the payments in the future. In Schivarelli v. Chicago Transit Authority, 355 Ill. App. 3d 93 (1st

Dist. 2005), for example, the CTA had been paying the utility bills of one of its tenants for nearly fourteen years before, in a reversal of course, it sought to recover the accrued utility costs. See id. at 161. Although the tenant allegedly had reached an agreement with a high-ranking CTA official that the CTA would pay the utility costs, the appellate court held that neither the agreement nor the prior conduct was binding on the CTA. As the court explained, under Illinois law, only the CTA’s Board may enter into lease agreements on behalf of the CTA. See id. at 165. Because Board approval was not obtained, and because the tenant was charged with knowledge of this limitation on the CTA’s contracting authority, there was no enforceable promise to pay the tenant’s utilities. See id. at 165-66. The court rejected the tenant’s invocation of equitable estoppel against the CTA for similar

15 reasons: neither the prior course of conduct nor the official’s promise qualified as an affirmative act by the Board itself, meaning that elements of estoppel were not satisfied. See id. at 168.

In short, a municipality’s employees are on notice, as a matter of law, that they have no right to increased compensation absent express approval by the municipality’s governing authority. And a municipal officer’s promise to pay, or even a past history of payment, does not alone establish express approval.

3. Estoppel does not protect against the loss of an advantage that a party had no right to receive in the first place.

Third, that a party comes to rely on an advantage that it had no right to receive in the first place is not the type of loss that estoppel protects against. For example, in City of Chicago v. Unit One Corp., the appellate court held that the City’s issuance of permits authorizing commercial signs on the exterior of the defendant’s building for the preceding fifteen years did not preclude the City from enforcing its sign ordinance to revoke the permits.

See 218 Ill. App. 3d at 246. Although the defendant argued that it relied on the sign permits to attract commercial tenants (who, in turn, made their lease agreements contingent on having the right to have exterior signs), and that without the permits it would be unable to attract or retain commercial lessees, the court held that being “disenfranchised of an advantage to which

16 [Unit One] had no right in the first place is not the type of loss upon which the concept of estoppel is focused.” Id. at 247.

Similarly, in Tyska v. Board of Education Township High School

District 224, 117 Ill. App. 3d 917 (1st Dist. 1983), the appellate court held that the plaintiffs’ allegations that they had been “induced” by their School

Board’s representations “to refrain from presenting to the Board arguments in opposition to the closing of [a school] and from actively campaigning for their special interest” did not work an estoppel because the Board was not required to consider the plaintiffs’ testimony or evidence. Id. at 932.

Because the plaintiffs had no right to participate in the Board’s decision in the first place, the deprivation they suffered did not qualify as the

“substantial detriment or loss necessary to invoke the doctrine of equitable estoppel.” Id.; see also McAdams v. Scullin, 53 Ill. App. 3d 374, 377 (5th Dist.

1977) (mother’s past statement to father he did not need to make child support payments did not preclude her from demanding them in the future, because father’s “change of position was not one for the worse and, to the contrary, could be considered to have inured to his benefit for a period of seven years”).

In recognizing a promissory estoppel claim, the appellate court placed substantial weight on plaintiffs’ allegation that the CTA had in fact provided and paid for retiree health benefits in the past. 2014 IL App (1st) 123348, ¶¶

86, 138. As the above cases make clear, however, unless the CTA was obliged

17 to provide retiree health care benefits in the first place, plaintiffs’ reliance on the CTA continuing to provide those benefits cannot work an estoppel.

* * * *

In sum, for three, independent reasons, the appellate court’s holding that plaintiffs’ allegations that the CTA voluntarily paid retiree health care benefits in the past state a promissory estoppel claim is incorrect: (1) a past practice by the CTA of paying for retiree health care benefits is not equivalent to a promise that the CTA will pay for these benefits in the future;

(2) the CTA’s past practice does not qualify as the required affirmative act by the CTA’s governing authority; and (3) the CTA’s decision to stop paying for a benefit it had no obligation to provide in the first place is not the type of loss estoppel protects against.

The appellate court’s ruling on vesting is also incorrect. Plaintiffs asserted a contractual right to retiree health care benefits, and argued that the language of the CBAs conferring those benefits established that retirees’ rights to benefits were vested – in other words, that retirees were entitled to continued benefits throughout retirement, even after the CBAs, which by their own terms were effective for a limited duration, expired. See 2014 IL

App (1st) 123348, ¶¶ 88-89. In determining whether plaintiffs stated a claim

18 of a vested right to the benefits claimed, the appellate court considered it necessary as a first step to “determine whether there is a presumption either in favor of or against vesting of retirement health care benefits” provided under a CBA. Id. ¶ 92. The court elected to apply a presumption in favor of vesting, id. ¶¶ 92-106, under which it viewed a finding of vested rights to be dictated absent language “unambiguously provid[ing] that retiree health care benefits were not intended to” vest, id. ¶ 108 (emphasis added).2

This court should reject this approach, which is contrary to settled principles of contract law and out of step with decisions of both the federal courts and other state courts. Equally problematic, the manner in which the appellate court applied its presumption – as a background rule for interpreting contract terms, even before determining whether there is any ambiguity, and also before considering extrinsic evidence of the parties’ intent to resolve such ambiguity – fundamentally misapprehends the proper role of presumptions and could have adverse consequences far beyond this

2 The court initially phrased the presumption as one that could be rebutted in either of two ways – by unambiguous contractual language that benefits were not intended to vest, or, where the language is ambiguous, by “‘extrinsic evidence suggest[ing] that the parties did not intend the benefits to vest.’” 2014 IL App (1st) 123348, ¶ 103 (quoting Marconi v. City of Joliet, 2013 IL App (3d) 110865, ¶ 38). But the court did not in fact make this second route available to defendants. Rather, after finding no language in the CBA that “unambiguously provides that retiree health care benefits were not intended to be vested rights,” 2014 IL App (1st) 123348, ¶ 108, the court concluded that “the rights provided . . . are vested rights that may not be changed after the CTA employee retires, id.; accord id. ¶ 122 (we “find that the plaintiffs have a vested right to retiree health care benefits”).

19 case.

A. The Presumption Applied By The Appellate Court Is Out Of Step With The Federal Courts And Other State Courts.

On the question whether to apply a presumption either in favor of or against vesting of retiree health care benefits, the appellate court’s analysis was limited to summarizing the approaches of two prior appellate court decisions, Haake v. Board of Education, 399 Ill. App. 3d 121 (2d Dist. 2010), and Marconi v. City of Joliet, 2013 IL App (3d) 110865. See 2014 IL App

(1st) 123348, ¶¶ 92-103. In Haake, the court applied a presumption, consistent with Seventh Circuit precedent, that retiree health care benefits terminate when the CBA providing for those benefits expires, 399 Ill. App. 3d at 132 (citing Cherry v. Auburn Gear, Inc., 441 F.3d 476, 481 (7th Cir. 2006)), although the presumption gives way if there is any evidence to the contrary, id. at 132-33 (citing Bland v. Fiatallis North America, Inc., 401 F.3d 779, 784

(7th Cir. 2005) and Rossetto v. Pabst Brewing Co., 217 F.3d 539, 544 (7th

Cir. 2000)). Marconi, in contrast, declined to follow federal law, and followed

Roth v. City of Glendale, 614 N.W.2d 467 (Wis. 2000), to apply a presumption in favor of vesting, 2013 IL App (3d) 110865, ¶¶ 24-38. Roth, in turn, took its guidance primarily from a concurring opinion in Bidlack v. Wheelabrator

Corp., 993 F.2d 603 (7th Cir. 1993) (en banc), see 614 N.W.2d at 472, which endorsed the rule set out in UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir.

1983), see Bidlack, 993 F.2d at 613 (Cudahy, J., concurring), that retiree

20 benefits are “status” benefits that “carry with them an inference that they continue so long as” an individual maintains the status of a retiree, Yard-

Man, 716 F.2d at 1482. In the decision below, the appellate court followed

Marconi’s reasoning and conclusion that a presumption in favor of vesting should apply.

This presumption – that the absence of affirmative language that the parties did not intend retiree health care benefits to vest requires a conclusion that vesting was intended – is difficult to reconcile with “settled law” that “contractual obligations will not, in the ordinary course, survive beyond the expiration of a collective bargaining agreement.” Litton Financial

Printing Division v. National Labor Relations Board, 501 U.S. 190, 207

(1991). To be sure, this general rule is subject to exceptions, to be

“determined by contract interpretation.” Id. Negotiated provisions of a CBA may remain in effect past the agreement’s expiration date if the parties so provide, see, e.g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 554-55

(1964), but the intent to do so must be set forth in the agreement itself,

Litton, 501 U.S. at 207-08; John Wiley & Sons, 376 U.S. 543, 554-55.

And, because it is at odds with ordinary contract interpretation principles to read silence as to the duration of benefits to give rise to a presumption of perpetual obligations, see, e.g., UAW v. Skinner Engine Co.,

188 F.3d 130, 147 (3d Cir. 1999); Joyce v. Curtiss-Wright Corp., 171 F.3d

130, 135 (2d Cir. 1999), the federal courts (and the state courts to have

21 considered the question) have overwhelmingly rejected a presumption in favor of vesting. The appellate court below, like the Third District in

Marconi, adopted the Sixth Circuit’s presumption that retirement benefits are vested unless the agreement clearly specifies otherwise. But none of the other federal circuits follows the Sixth Circuit’s approach. See, e.g., Lewis v.

Allegheny Ludlum Corp., 2011 WL 6440873, *1-*2 (No. 11-2517, N.D. Ohio

Dec. 21, 2011) (granting motion to transfer venue where plaintiffs had engaged in forum shopping to capitalize on the Sixth Circuit’s “unique precedent”). To the contrary, although other federal courts vary in their approaches, all that have considered the question reject a presumption that a party’s obligations under a CBA extend beyond the durational term of the

CBA based on contractual silence.

For instance, the Third Circuit, in direct opposition to the Sixth, applies a strong presumption against vesting, which can be overcome only by

“clear and express” language of intent to vest. See Skinner Engine, 188 F.3d at 139. The Second and Seventh Circuits presume that a CBA’s provision limiting its duration applies equally to health care benefits conferred by the

CBA, but leave the door open for plaintiffs to identify written language capable of being reasonably interpreted as a promise to vest. See, e.g., Bland,

401 F.3d at 784; American Federation of Grain Millers, AFL-CIO v. Int’l

Multifoods Corp., 116 F.3d 976, 981 (2d Cir. 1997). Other circuits have declined to endorse a presumption regarding vesting either way, yet have

22 disapproved the Sixth Circuit’s precedents either explicitly, see, e.g., Senior v. NSTAR Electric and Gas Corp., 449 F.3d 206, 218 (1st Cir. 2006) (noting that “a number of circuits have criticized Yard-Man to the extent it can be read” to support a presumption of vesting benefits); Anderson v. Alpha

Portland Industries, Inc., 836 F.2d 1512, 1517 (8th Cir. 1988) (“[W]e disagree with Yard-Man to the extent it recognizes an inference of an intent to vest.”), or implicitly, see, e.g., Gable v. Sweetheart Cup Co., 35 F.3d 851, 855 (4th

Cir. 1994) (“courts may not lightly infer . . . an agreement to vest”; rather, a vested right to benefits must be “found in the plan documents” and “stated in clear and express language”); Wise v. El Paso Natural Gas Co., 986 F.2d 929,

938 (5th Cir. 1993) (“silence” as to employer’s right to modify a plan does not

“impliedly cede the right to later amend or discontinue coverage”). And, in fact, the United States Supreme Court has accepted review of a decision applying the Sixth Circuit’s outlier approach, see Tackett v. M&G Polymers

USA, LLC, 733 F.3d 589 (6th Cir. 2013) (cert. granted May 5, 2014), and appears likely to reject it.3

3 See, e.g., Adam Liptak, New York Times, Nov. 10, 2014, Supreme Court Weighs Case Over Cuts to Retirees’ Health Benefits, http://www.nytimes.com/2014/11/11/business/supreme-court-to-hear-retiree- benefits-case.html?_r=0 (at oral argument, Sixth Circuit’s Yard-Man decision “was disavowed by lawyers on both sides . . . and it did not seem popular with the justices, either”); Tony Mauro, National Law Journal, Nov. 10, 2014, No Clear Rule Likely From Justices on Retiree Health Benefits, http://www.nationallawjournal.com/supremecourtbrief/id=1202676040217/No -Clear-Rule-Likely-From-Justices-on-Retiree-Health-Benefits?slreturn=2014 1115095515 (during oral argument, “most justices seemed to favor striking (continued...)

23 Among the state supreme courts, Wisconsin appears to be alone in its adoption of a presumption of vesting. Indeed, courts in a number of other states have expressly rejected such a presumption. See, e.g., Municipality of

Anchorage v. Gentile, 922 P.2d 248, 256 (Alaska 1996); Poole v. City of

Waterbury, 831 A.2d 211, 222 (Conn. 2003); Anderson v. Town of Smithfield,

2005 WL 3481627, *7 (R.I. Super. Ct. Dec. 20, 2005); Davis v. Wilson County,

70 S.W.3d 724, 727-28 (Tenn. 2002).4 In short, the appellate court below, like the Third District in Marconi, adopted the minority rule embraced by the

Sixth Circuit alone among the federal courts of appeals (and currently under review by the United States Supreme Court) and the supreme court of a single State, Wisconsin, whose supreme court relied on the Sixth Circuit.

Tellingly, Marconi (and, in turn, the decision below, which simply adopted Marconi’s reasoning) gave unreasonably short shrift to the weight of federal authority rejecting the presumption the court went on to adopt. The court misleadingly described the Sixth Circuit as an “example” of a federal

3(...continued) down” Yard-Man).

4 Although the Washington Supreme Court appeared to adopt a presumption in favor of vesting in Navlet v. Port of Seattle, 194 P.3d 221 (Wash. 2008), the court subsequently qualified Navlet’s holding in Washington Education Association v. Washington Dept. of Retirement Systems, 332 P.3d 439 (Wash. 2014). In Navlet, the court had held that a reservation of rights clause in a document outside a CBA was unenforceable, but recognized that it would be enforceable if included in the CBA itself, 194 P.3d at 221, and in Washington Education Association, the court clarified that a reservation of rights clause within a CBA establishes that rights conferred are not vested, 332 P.3d at 445.

24 court adopting a presumption in favor of vesting, Marconi, 2013 IL App (3d)

110865, ¶ 37, when, in fact, the Sixth Circuit stands alone among the federal circuits. The court in Marconi also distinguished federal court decisions applying a presumption against vesting on the ground that most such decisions concerned private employer benefits governed by the Employee

Retirement Income Security Act (ERISA), which does not apply to state and local governments. See 2013 IL App (3d) 110865, ¶ 36. But, for the most part, the federal courts have been guided by “traditional rules of contract construction,” Skinner Engine, 188 F.3d at 138; accord, e.g., Senior, 449 F.3d at 216-17, rather than any principle unique to ERISA. Moreover, ERISA’s differential treatment of pension and retiree welfare plans (including health care plans) – the statute mandates that pension rights are vested but imposes no such requirement on welfare benefits – itself reflects Congress’s

“recognition of the need for flexibility in rejecting the automatic vesting of welfare plans.” Moore v. Metropolitan Life Insurance Co., 856 F.2d 488, 492

(2d Cir. 1988). Indeed, “Congress recognized that requiring the vesting of these ancillary benefits would seriously complicate the administration and increase the cost of plans.” Inter-Modal Rail Employees Ass’n v. Atchison,

Topeka & Santa Fe Ry., 520 U.S. 510, 515 (1997) (internal quotation omitted). These background principles of contract law and public policy upon which the federal courts of appeals have relied are no less applicable outside

ERISA’s context.

25 For this reason, state courts deciding cases involving public-sector retirement health benefits have not hesitated to consult the legal reasoning in private-sector ERISA decisions. See, e.g., Anderson, 2005 WL 3481627,

*5-*7; Poole, 831 A.2d at 220-21 & n.9; Davis, 70 S.W.3d at 727-28. And, given that this court has made clear that federal case law “may serve as persuasive authority and provide guidance where reasonable and logical,”

Coram v. State, 2013 IL 113867, ¶ 132; see also, e.g., American Federation of

State, County, and Municipal Employees v. Illinois State Labor Relations

Board, 216 Ill. 2d 569, 579 (2005) (federal labor law is persuasive for interpreting similar state provisions), the appellate court in Marconi (which, again, the decision below followed) should not have cavalierly marginalized federal precedents as “inapposite.” 2013 IL App (3d) 110865, ¶ 36.

In fact, the boldness of the appellate court’s rule adopted is evident from comparison to the outlier, the Sixth Circuit, which has felt compelled to deny that it applies a “legal presumption that benefits vest,” and instead characterized its rule as merely an “inference” that it is “unlikely” that retiree health benefits are to have been “left to the contingencies of future negotiations.” Reese v. CNH America LLC, 574 F.3d 315, 321 (6th Cir. 2009)

(quotations omitted); accord Maurer v. Joy Technologies, Inc., 212 F.3d 907,

917 (6th Cir. 2000). And, as we now explain, there are sound reasons that this presumption has been overwhelmingly rejected by other courts.

26 B. A Presumption In Favor Of Vesting Is Contrary To Ordinary Principles Of Contract Law And Is Otherwise Unjustified.

Under Illinois law, basic rules of contract interpretation require that, in construing a contract’s terms, the court’s “primary objective is to give effect to the intention of the parties.” Thompson v. Gordon, 241 Ill. 2d 428,

441 (2011). To determine the parties’ intent, the court must “first look to the language of the contract itself.” Id.; accord, e.g., Air Safety, Inc. v. Teachers

Realty Corp., 185 Ill. 2d 457, 462 (1999) (written contract “speaks for itself,” and is “presumed to speak to the intention of the parties who signed it”).

Only if the language of the contract is susceptible to more than one meaning may extrinsic evidence be admitted to resolve the ambiguity. See, e.g., Air

Safety, 185 Ill. 2d at 462-63; Gallagher v. Lenart, 226 Ill. 2d 208, 233 (2007).

These principles, of course, are not unique to Illinois law. See, e.g., Stolt-

Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010); Bland, 401

F.3d at 783-84. And a “collective bargaining agreement is a contract,” and as such, is to be interpreted according to ordinary contract interpretation rules.

Woods v. City of Berwyn, 2014 IL App (1st) 133450, ¶¶ 24, 28; accord, e.g.,

Truck Drivers, Oil Drivers, Filling Station and Platform Workers’ Union

Local 705 v. Schneider Tank Lines, 958 F.2d 171, 172 (7th Cir. 1992).

Although the court below gave lip service to its duty to examine the

CBA’s language for indicia of the parties’ intent, see 2014 IL App (1st)

1233348, ¶ 106, its “presumption of vesting” disregards basic principles of

27 contract interpretation. Rather than looking to the language of the CBA to see if there were any ambiguity to be resolved, the court instead reviewed the terms of the parties’ agreement in a search for clear language that the parties did not intend that retiree health benefits continue after the agreement expired. See id. ¶ 106; see also id. ¶ 108 (We “cannot find that the language . . . unambiguously provides that retiree health benefits were not intended to be vested rights.”). This approach is flawed for at least two, independent reasons.

First, this is not how a presumption works. The point of a

“presumption” is to resolve a “completely intractable issue of contract interpretation,” Bidlack, 993 F.2d at 609 (lead opinion), where a contract’s terms are ambiguous, and even resort to extrinsic evidence does not resolve the ambiguity, see id. “But the time to throw up one’s hands and apply such a rule is after extrinsic evidence has been considered” and there remains an

“intractable interpretive issue.” Id. (emphasis in original). Starting with a presumption, before even assessing what the language of an agreement discloses about the parties’ intent, will inevitably result in interpretations that the parties did not intend.

Second, regardless of when in the interpretive process it is applied, the assumption that benefits are vested unless a CBA’s terms plainly provide otherwise is contrary to settled principles of contract interpretation. As the appellate court’s decision below demonstrates, the “presumption of vesting”

28 requires that, in the not-unusual circumstances where a CBA does not specify the duration of benefits, those benefits will be held to continue throughout retirement – regardless of the facts of a particular case. This effectively adds terms to the parties’ agreement by judicial decree, contravening the rule against construing contracts to include provisions that could easily have been included in the written agreement but were not. See, e.g., Thompson, 241 Ill. 2d at 449; John T. Doyle Trust v. Country Mutual

Insurance Co., 2014 IL App (2d) 121238, ¶ 18. Moreover, requiring defendant employers to clearly establish that benefits have not vested reverses the burden of proof in contract interpretation as well as in civil litigation generally. See, e.g., Howe v. Varity Corp., 896 F.2d 1107, 1109 (8th

Cir. 1990) (union or retirees, not the employer, bears burden to establish vested benefits).

The appellate court’s resort to “equitable considerations” to justify a presumption of vesting, Matthews, 2014 IL App (1st) 123348, ¶ 101, does not support its departure from these principles. First, the court suggested that it would be unfair to allow an employer to modify its obligations after an employee has provided service with the expectation of receiving previously promised benefits. See id. This rationale assumes its conclusion. Where a

CBA providing retiree health benefits is time limited by its own terms, and nothing in the agreement indicates the benefits will continue after the CBA expires, employees have no basis to expect that the benefits will continue

29 forever.

As for the appellate court’s concern that many retirees live off of fixed incomes and may have difficulty meeting additional financial obligations,

2014 IL App (1st) 123348, ¶ 101, this is a reason for employees to prefer a contract that provides vested health benefits in retirement, but not a basis for a legal rule that trumps contract law. Indeed, because employees and their union representatives have an incentive to negotiate for vested retirement benefits, it is more likely than not, absent a clear statement of the parties’ intent to vest, that the employees failed to obtain a commitment to continue retiree health care benefits beyond the expiration of the CBA.

Further, concerns about the adverse financial impact of decreases in employer-provided retiree health benefits are less compelling now than they were thirty years ago when the Sixth Circuit adopted the presumption in

Yard-Man, followed by the appellate court here, that health benefits vest for life. Since that time, there has been a significant expansion of federal law to increase affordable healthcare options available to retirees.5

Third, the appellate court relied on a perceived conflict of interest

5 For instance, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), provides retirees who lose coverage with expanded access to health plans and increased the breadth of available coverage. See, e.g., 29 U.S.C. § 1181, 1182. More recently, the enactment of the Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010), further changed the landscape of health coverage for retirees, ensuring access to plans that meet standards of affordability and coverage. See, e.g., Pub. L. No. 111-148, §§ 1301-04, 1401, 2701, 2704.

30 between the unions charged with negotiating for benefits under CBAs and current retirees, whose interests the unions no longer represent. See 2014 IL

App (1st) 123348, ¶ 101 (stating that a presumption in favor of vesting

“serves to protect the voiceless in the subsequent negotiating process”). This ignores that all current employees are potential beneficiaries of retiree benefits, and, accordingly, a union is fully qualified to bargain for provisions vesting such benefits pursuant to a CBA that is otherwise effective only during a limited term. See, e.g., Bidlack, 993 F.2d at 609. In any event, it is not the court’s role to conduct “a generalized inquiry into the fairness” of a contract’s terms based on policy concerns. Gallagher, 226 Ill. 2d at 243.

Thus, any perceived unfairness in how retirees’ rights are represented in

CBA negotiations provides no basis for the appellate court’s extraordinary departure from general contract principles. Indeed, ordinary principles of contract interpretation are especially applicable in the context of collective bargaining, which is conducted by sophisticated parties with extensive experience negotiating labor agreements.

Finally, the appellate court’s decision below fails to account for the important public policy considerations that will be undermined by a presumption in favor of vesting. For one thing, automatic vesting of retiree health care benefits is problematic because of the nature of the benefits, which cannot be predictably forecast. Health benefit plans are qualitatively different from pension plans; whereas the future expense of pension plans is

31 based on relatively stable data and can be calculated with a high degree of actuarial certainty, health insurance costs vary dramatically based on inflation, changes in medical practice, claims history, and other factors that are notoriously unpredictable. See, e.g., Moore, 856 F.2d at 492. Given the difficulty of projecting future healthcare expenses, it should not be presumed that the parties intended to guarantee a particular level of health care benefits in perpetuity.6

Indeed, the rule adopted by the appellate court below is of particular concern in light of demographic trends: increases in life expectancy mean that the retiree population will continue to grow, as health care costs rise as well. A rule that silence about the duration of benefits gives rise to an obligation to provide lifetime benefits would require public employers to bear enormous costs that were not bargained for. This would not only have negative consequences for public finances, and by extension, government’s ability to provide necessary public services, but would also put downward pressure on active employees’ wages. Even if retiree health benefits

6 In Kanerva v. Weems, 2014 IL 115811, this court held that this difference between pension and health care benefits is insufficient to categorically exclude retiree health benefits from protection under the Pension Clause of the Illinois Constitution. See id. ¶ 54. But the fact that retiree health benefits are within the scope of the Pension Clause’s protections does not answer the separate and very different question here, whether the parties to a CBA agreed that such benefits would be guaranteed forever. The qualitative differences between pension and health care benefits counsel against a rule pursuant to which public employers will be deemed to have undertaken a duty to provide lifetime health care benefits for their retirees absent an express statement to the contrary.

32 conferred in existing CBAs were deemed fixed based on a presumption of vesting, the wages, benefits, and other conditions of employment for current employees remain negotiable from one agreement to the next. Public employers facing liability for long-term retiree health care benefits that they did not contemplate, much less agree to, will need to find savings elsewhere.

* * * *

For all these reasons, the presumption adopted below – that retirement health benefits provided by a CBA vest unless the contractual language unambiguously establishes an intent not to vest – should be rejected. It is inconsistent with established rules for interpreting contracts to discern the parties’ intent and, as a result, with decisions of the vast majority of federal courts and other state courts that have addressed this issue. And to the extent that equitable considerations are relevant to the inquiry, these considerations do not support the presumption, either.

33 CONCLUSION

This court should reverse the judgment of the appellate court holding, first, that plaintiffs stated a promissory estoppel claim against the CTA and, second, that retiree health care benefits conferred by a collective bargaining agreement are presumptively vested unless the agreement expressly provides otherwise.

Respectfully submitted,

STEPHEN R. PATTON Corporation Counsel of the City of Chicago

BY: ______JANE ELINOR NOTZ Deputy Corporation Counsel 30 North LaSalle Street, Suite 800 Chicago, Illinois 60602 (312) 744-7764

ROGER HUEBNER Deputy Executive Director and General Counsel Illinois Municipal League 500 East Capitol Avenue Springfield, Illinois 62701 (217) 525-1220

34 CERTIFICATE OF COMPLIANCE

I certify that this brief conforms with the requirements of Rules 341(a) and (b) and 315(h). The length of this brief, excluding the pages containing the Rule 341(d) cover, the Rule 341(h)(1) statement of points and authorities, the Rule 341(c) certificate of compliance, and the certificate of service is 34 pages.

Sara K. Hornstra, Attorney

CERTIFICATE OF SERVICE ______

I certify that I served the Brief of the Illinois Municipal League and the City of Chicago as Amicus Curiae in Support of Defendants-Appellants, by placing three copies each in envelopes with sufficient postage affixed and directed to the persons named below at the addresses indicated, and by depositing those envelope in the United States mail on December 19, 2014.

______Sara K. Hornstra, Attorney

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