Opinion ID: 4416843
Heading Depth: 3
Heading Rank: 1

Heading: The Contracts Clause Claim Against Schaumburg

Text: Beginning with the Contracts Clause claim against Schaumburg, the Alarm Companies have stated a plausible claim. The complaint alleges that the Ordinance forces all of the Alarm Companies’ customers, totaling more than 1,000, to ei‐ ther cancel or not renew their contracts. Some accounts have already canceled their agreements. The district court rightly accepted that this could amount to a significant impairment on the Companies’ contractual rights. But the court then fo‐ cused on Schaumburg’s proffered interests: public safety, and more specifically, reliability, efficiency, and the prevention of signal delays. Deferring to those interests, the court con‐ cluded that they justified the possible impairment. That con‐ clusion was premature. At this stage, it is too soon to know how much deference to afford Schaumburg. We afford “at least some deference,” to be sure. Elliott v. Bd. of Sch. Trs. of Madison Consol. Sch., 876 F.3d 926, 936 (7th Cir. 2017); see also Energy Reserves Grp., 459 U.S. at 412–13. But the amount of deference owed “differs de‐ pending on” the impairment’s severity and the state’s self‐ No. 18‐3316 11 interest. Elliott, 876 F.3d at 937 (citing Spannaus, 438 U.S. at 245; U.S. Trust Co., 431 U.S. at 25–26). The complaint alleges a potentially significant impairment, the early cancellation of contracts, as well as Schaumburg’s self‐interest, namely, the $300,000 it stands to gain after the Ordinance. Taking those allegations as true, as we must, it follows that the deference owed to Schaumburg may be minimal. With minimal deference, would Schaumburg’s proffered interests justify the Ordinance and the Notice? Again, it is too early to tell. There is no presumption of legislative validity under the Contracts Clause, and it demands more than a le‐ gitimate end and a rational means. See Am. Exp. Travel Related Servs., Inc. v. Sidamon‐Eristoff, 669 F.3d 359, 369 (3d Cir. 2012) (Contracts Clause review is “more exacting” than rational‐ba‐ sis review). The Contracts Clause instead requires “appropri‐ ate” and “reasonable” tailoring, and the complaint alleges facts that suggest the Ordinance is not so well tailored: a CSS model is reliable and efficient, the complaint says, and it is NFPA 72’s “preferred” supervisory system. The Companies also suggest that even if Schaumburg wants an RSS system for the area, the Companies can still keep their customers. Auto‐ matic retransmission is feasible, they claim, but Tyco’s posi‐ tion as the exclusive provider forecloses that alternative. Tak‐ ing those facts as true, there may be “an evident and more moderate course” that would have served Schaumburg’s “purposes equally well.” U.S. Trust Co., 431 U.S. at 31. The Alarm Companies therefore pleaded a plausible Con‐ tracts Clause claim against Schaumburg, because of the favor‐ able inferences we afford to them under a Rule 12(b)(6) anal‐ ysis. The Companies have not, however, demonstrated a likeli‐ hood of success on the merits, as required for a preliminary 12 No. 18‐3316 injunction. HH‐Indianapolis, LLC v. Consol. City of Indianapolis & Cty. of Marion, Ind., 889 F.3d 432, 437 (7th Cir. 2018); Lambert v. Buss, 498 F.3d 446, 452 (7th Cir. 2007) (per curiam). The Alarm Companies appear to recognize as much, making little effort on appeal to argue otherwise. Sensibly so. The Contracts Clause, as we have said before, is concerned with the “taking away” of “entitlements that pre‐ dated the change” in legislation. Underwood v. City of Chicago, Ill., 779 F.3d 461, 463 (7th Cir. 2015). In this case, however, many contracts will simply not be renewed—not prematurely canceled—which makes it less likely that the Companies have a reasonable expectation in those contracts after the Ordi‐ nance’s August 2019 cutoff date. Accord Dodge v. Bd. of Educ. of City of Chicago, 302 U.S. 74, 80 (1937) (holding that Contracts Clause challenge failed in the absence of vested contractual rights). The Ordinance, moreover, not only allows for a three‐ year window from its enactment to its effective date; it also permits accounts with contracts expiring after the August 2019 cutoff to seek an extension. This, then, is not a case of a “sudden, totally unanticipated, and substantial[ly] retroac‐ tive” change in the law, with which the Contracts Clause is most concerned. Spannaus, 438 U.S. at 248–49. The Alarm Companies still press that the Ordinance and the Notice are poorly tailored because they preclude auto‐ matic retransmission, which, they say, is a less restrictive means of meeting the same safety goals. Yet the Companies themselves admit that automatic retransmission has not been used in Schaumburg to date. The state’s important interest in fire safety and the fact that the RSS model is NFPA 72‐ap‐ proved present likely more hurdles for the Alarm Companies. The companies have thus failed to demonstrate a likelihood No. 18‐3316 13 of success, even if they adequately pleaded their Contracts Clause claim against Schaumburg.