### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ No. 13

- 3790
M ICHAEL W. U NDERWOOD , et al

. , Plaintiffs

- Appellants ,

v.

C ITY OF C HICAGO , I LLINOIS , Defendant

- Appellee

.

____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 568 7

— James F. Holderman
, Judge

.

____________________
A RGUED D ECEMBER 10, 2014

— D ECIDED F EBRUARY 25, 2015

____________________

Before E ASTERBROOK , S YKES , and H AMILTON , Circuit Judges

. E ASTERBROOK , Circuit Judge

. Since 1982 Chicago has pr ovided free or subsidized health care to retirees who re ceive pension benefits through funds for police, fire, and some other job classifications. In June 2013 the most recent ord inance establishing these benefits expired. It had been enac ted in 2003 and contained a sunset clause providing for te rmination after 10 years. When the City notified the retirees2 No. 13

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that they would have to pay more for medical coverage in 2014 , they filed suit in s tat e court against the City

. (They also named the funds but did not serve them with process, so they did not become parties.) The suit’s principal contention is that any reduction of health care or increase in the retirees’ con tribution toward it violates Art. XIII §5 of the Illinois Constitution (the Pensions Clause) , which says that “ [m]embership in any pension or

re tirement sys tem of ... any unit of local government

... shall be an en forceable contractual relationship, the benefits of which shall not be dimin ished or impaired.” The complaint also asserted that the City’s policy violates the Contracts Clause of the United States Constitution, Art. I §10 cl. 1, which says that “[n] o State shall

... pass any

... Law impai ring the Obligation of Contracts ”. The fe deral claim allowed Chicago to remove the suit to federal court, which it did. See 28 U.S.C. §1441. The district court dismissed the suit on t he pleadings, ruling that the Pensions Clause does not apply to health care and that the Contracts Clause claim fa ils on the merits. 2013 U.S. Dist. L EXIS 174455 (N.D. Ill. Dec. 13, 2013). While the case was on appeal, the Supreme Court of Ill inois held that the Pensions Clause appli es to health benefits

. Kanerva v. Weems , 2014 IL 115811 (July 3, 2014). Both sides the n filed briefs asking us to decide the merits of the plai ntiffs’ claim, which entails a contention that any participant in a pension plan who receives health benefits

— even if from another source, such as the City of Chicago

— is entitled to keep them no mat t er what terms the payor attached . On plaintiffs’ understanding, if a city promises health cover age dur ing one m ayor’s term of office , or for one year following a worker’s retire ment, or until 2013, or any oth er limit , theNo. 13

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retiree is nonetheless enti tled to benefits for life. Chicago contend s that this is not a sound understanding of the Pe nsions Clause, which says that membership is “contractual” and does not imply that the terms on whic h benefits were established can be overridden. Cf. M&G Polymers USA, LL C v. Tackett , 135 S. Ct. 926 (2015) (health benefits vest for pu rposes of federal law when analysis under the ordinary law of contracts shows that a lifetime promise has been made; courts should not use a presumption for or against vesting).
We are reluctant to resolve a novel issue of state constit utional law. The Supreme Court of Illinois has not addressed the subject on which the parties disagree. Each finds some support in state decisions, but the Supreme Court has not tack l ed the issue di rectly, and it could not have done so until after holding in Kanerva t hat the Pensions Clause applies. The state’s highest court has granted review in Matthews v. Chicago Transit Authority , 2014 IL App. (1st) 123348 (Apr. 25, 2014), petition for leave to a ppeal allowed, 2014 IL L EXIS 954 (Sept. 24, 2014) , which may shed light on the issues, but that case has yet to be briefed, and the eventual decision in Ma tthews may or may not control this case. Health benefits in Matthews were created by a collective bar gaining agreement, and the holding may be limited to how a CBA’s silence about the duration of health benefits interacts with the Pe nsions Clause ; but the court also could choose to embrace (or reject) plaintiffs ’ contention that all health bene fits vest a utomatically by virtue of the Pensions Clause

. There is, moreover, a potentially important question that the parties have not addressed: What “benefits” does the Pensions Clause protect? P laintiffs assume that it covers in

kind benefits such as health care , no matter the cost to the4 No. 13

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employer. Yet pensions promise a particular amount of money (for defined

- benefit plans) or the balance in a partic ular fund (for defined

- contribution plans), not a particular quantum of buying power. If the cost of automobiles, foo d, 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 im ply that the Pe nsions Clause locks in the amount of the promised subsidy but does not g uarantee a particular level of medical care. Kanerva implies as much by saying that the state’s contrib utions to health

- insurance premiums are the protected benefit. But it did not tackle that issue directly. Silence makes it hard for a federal court to re solve this appeal.
The state

- law issues came to federal court via the su pplemental jurisdiction. We are free to resolve the federal claims and return the state claims to state court. 28 U.S.C. §1367(c ) (1), (3)

. Although plaintiffs’ appellate briefs asked us
to decide the whole case , a post

- argument supplemental memorandum asked us to remand the state

- law claims . Ch icago maintained its position that all is sues should be r esolved now

. Given the uncertainty surround ing the state

law claims, their importance to employees across Illinois, and the fact that the district court did not even begin to a ddress them on the merit s (having held that the Pensions Clause does not apply), we conclude that a remand is the best step

— if the federal claim s can be resolved without d eciding the state

- law claims too.
The Contracts Clause does not create a right to have all contractual claims enforced in federal court. It provides i nstead that states may not enact any law impairing the obl ig ation of contracts

— that is, taking away entitlements that pr e-No. 13

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dated the change . See, e.g., General Motors Corp. v. Romein , 503 U.S. 181, 186 (1992); Allied Structural Steel Co. v. Spannaus , 438 U.S. 234, 244 (1978); Ogden v. Saunders , 25 U.S. (12 Wheat.) 213 (1827)

. The Contracts Clause covers legislative as opposed to e xecutive action. See, e.g., St. Paul Gas Light Co. v. St. Paul , 181 U.S. 142, 148 (1901); E&E Hauling, Inc. v. Forest Preserve Di strict of Du Page County , 613 F.2d 675, 678 (7th Cir. 1980). Plaintiffs attempt to satisfy this requirement by contending that various state statutes have impaired their rights to health benefits. But to the extent that they contest state sta tutes, they have sued the wrong party. Chicago is not respo nsible for the content of state law. So have plaintiffs identified any legislat ive action by the City that impairs contractual rights? They have not. They do
not ac cuse the City of making legislative changes that pr event imple mentation of contracts. Many decisions hold t hat legislation can breach a contract without impairing the obligation of contracts. That’s the point of E&E Hauling and the cases on which it relied. See, e.g., St. Paul Gas Light , 181 U.S. at 149; Hays v. Port of Seattle , 251 U.S. 233, 237 (1920); Jackson Sawmill Co. v. United States , 580 F.2d 302 (8th Cir. 1978). A statute or ordinance preventing e nforcement of contracts would create a problem under the Contracts Clause, see E&E Hauling , 613 F.2d at 680

– 81 & n.7. But plaintiffs do not contend that Chicago has adopted legi slation overriding or otherwise blocking the enforcement of contracts about health benefits. Illinois law provides plaintiffs with ample remedies, if their state

- law theories are correct. Cf. Mid

- American Waste6 No. 13

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Systems, Inc. v. Gary , 49 F.3d 286 (7th Cir. 1995 ) ; Simmons v. Gillespie , 712 F.3d 1041 (7th Cir. 2013); Kay v. Chicago Board of Education , 547 F.3d 736 (7th Cir. 2008). Far from superseding contracts, Illinois law arguably gives promises more force than they would have under the com mon law . The 2003 o rdinance had a time limit; no one contends that its expira tion was a breach of contract. Older promises, which plaintiffs and the district court characterize as “handshake deals,” likewise are not enforceable as con tracts. T he Il linois Statute of Frauds , see McInerney v. Charter Golf, Inc. , 176 Ill.2d 482, 490 (1997), prevents the enforcement of oral promises that extend more than a year into the future, as these “hand shake deals” did

. (We have omitted details about the sequence o f promises underlying the plaintiffs’ claims. The district court’s opinion recounts them; they do not matter to analysis under the Contracts Clause.) Plaintiffs contend that the Pe nsions Clause of the Illinois Constitution gives the City’s promises greater force than the common law of contracts provides, but that is a proposition of state law only and does not create a claim under the federal Contracts Clause. At oral argument plaintiffs’ counsel suggested that Ch icago may have violated the Takings Clause o f the Fifth Amendment by discontinuing or reducing health benefits. No such argument appears in the briefs, and a takings claim would be premature. The federal Constitution does not fo rbid takings; instead it requires just compensation. This means that a ny takings claim belongs in state court, which may award compensation. See Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City , 473 U.S. 172 (1985) . An unripe takings claim cannot keep this suit in federal court.No. 13

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The federal judiciary has an institutional interest in a llowing states to resolve novel issues of state law. It would be an abuse of discretion for a district court to retain the state

law claims, once the federal claims have been resolved, and it would be a mistake for us to say anything more about them. Because the Supreme Court of Illinois has granted r eview of a case whose disposition may cast light on plaintiffs’ claims , and because this suit began in state court, relinquis hing supplemental jurisdiction i s preferable to certifying one or more questions to the state judiciary. The judgment of the district court is vacated, and the case is remanded with i nstructions to remand the state

- law claims to state court u nder §1367(c).