Opinion ID: 800003
Heading Depth: 3
Heading Rank: 1

Heading: Contracts-Clause Claim

Text: Even if the Eleventh Amendment did not bar Council 31's Contracts-Clause claim, that claim would still fail because Council 31 has not stated a cognizable claim. The Contracts Clause of the U.S. Constitution provides that No state shall enter into any ... Law impairing the Obligation of Contracts.... U.S. CONST. art. I, § 10. To succeed on a Contracts-Clause claim, a plaintiff must demonstrate that a change in state law has `operated as a substantial impairment of a contractual relationship.' Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992) (quoting Energy Reserves Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400, 411, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978)). This inquiry requires the plaintiff to show (1) that there is a contractual relationship, (2) that a change in law has impaired that relationship, and (3) that the impairment is substantial. Id.; see also Khan v. Gallitano, 180 F.3d 829, 832 (7th Cir.1999). The parties dispute both aspects of the second element (whether there has been a change in law, and, if so, whether any change in law caused an impairment of the contractual relationship) as well as the third element (whether any impairment is substantial). We need not wade into all of these disputes, however, because we believe that the issue of impairment settles the matter. [4] And so we will address only whether there has been an impairment of the contractual relationship in this case. Council 31 argues that [c]ourts find impairment where, as here, the express terms of the labor agreement create the right or benefit in question because one can presume that the parties to a contract have relied heavily on the explicit benefits set forth in that contract. This argument describes a classic breach of contract action. But we have rejected the notion that a breach of contract alone is enough to constitute a constitutional impairment of a contractual obligation. Horwitz-Matthews, Inc. v. City of Chicago, 78 F.3d 1248, 1250 (7th Cir.1996). And for good reason: The essence ... of a breach of contract is that it triggers a duty to pay damages for the reasonably foreseeable consequences of the breach. If the duty [to pay damages] is unimpaired, the obligation of the contract cannot be said to have been impaired. Id. at 1251. So our inquiry does not focus on whether Council 31 has adequately pleaded a breach of contract claim (it most certainly has), but rather on whether [the State] ... set up a defense that prevented [Council 31] from obtaining damages, or some equivalent remedy, for the breach. Id. Here, Council 31 argues only that the Rules constitute an unconstitutional impairment of the collective bargaining agreements. This argument can prevail only if the Rules are a defense that the State has set up to prevent Council 31 from obtaining damages for breach of contract. And so we will briefly examine the State's defense in the aforementioned state court proceedings to determine whether the Rules foreclose a remedy for breach of contract. It is clear that they do not. Indeed, Council 31 has already prevailed at arbitration on its breach of contract claim, and in the subsequent suit filed by the State in state court to vacate the arbitration award, the State's defense is not predicated on the Rules. Rather, the State's defense is based on the application of Section 21 of the Illinois Public Sector Relations Act, which states that the negotiation of collective bargaining agreements is [s]ubject to the appropriation power of the employer [which is the State]. 5 Ill. Comp. Stat. 315/21. Accordingly, the State has argued that appropriations are a condition precedent to the wage increases being paid. Because plenary appropriation authority lies with the legislative branch, the State asserts that the executive branch's hands are tied by the appropriations doled out by the General Assembly and so the State cannot be held liable for a breach of contract when, because of a lack of appropriations, insufficient funds exist to fulfill a contractual obligation. This argument is consistent with the State's rationale for enacting the rules, as stated in Director Weems's July 1 memorandum: [D]ue to the absence of sufficient appropriations by the General Assembly, the above listed agencies cannot implement the FY12 increases. In other words, the Rules simply implemented a payment plan that had been dictated by legislative fiat. Ultimately, whether the State prevails in state court will not rest on the court's construction of the Rules, but rather on the court's application of Section 21 of the Illinois Public Sector Relations Actspecifically, whether the court accepts the State's argument that Section 21 establishes the notion that appropriations are a condition precedent to the State meeting its contractual obligations. Thus, the Rules do not foreclose a remedy for breach of contract, and no impairment of a contractual obligation exists. Council 31 has failed to state a cognizable Contracts-Clause claim.