First Thoughts: Live-(Nearly)-Blogging the Oral Argument in Kanerva

This morning, a seemingly skeptical Illinois Supreme Court appeared ready to side with the State in a dispute over 2012 amendments to the State Employee Group Insurance Act. Several Justices peppered the two attorneys splitting argument time for the plaintiffs with sixteen questions during their opening, many of which echoed various points made in the Circuit Court’s opinion tossing the case out of court. In comparison, counsel for the State was treated gently, receiving only five questions in all, four of them from Justice Thomas.

Counsel for the plaintiffs began by emphasizing the fact that the Pension Protection Clause doesn’t actually use the word “pension” in describing what is protected – it says “benefits.” (See the post immediately below this one for the full text of the clause.) Counsel argued that the word “benefits” has a plain and unambiguous meaning in the context of employment, as demonstrated by the fact that one regularly sees signs and advertisements speaking of jobs “with benefits” – with no further explanation of what is meant. The ordinary understanding of the term clearly includes health insurance, counsel argued. Counsel pointed out that the voters who approved the state constitution chose to protect “benefits,” not just “pensions,” and that the title of the clause is “Pension and Retirement Rights” – if the clause is limited to pensions, then the word “retirement” means nothing. Justice Freeman asked counsel whether the case was one of first impression in that it related to something which was not clearly part of a pension, and if so, whether the Court should consider that it might be expanding the scope of the Clause. Counsel reiterated that the Clause used the broader term “benefits,” not just pensions. Justice Burke asked counsel whether there was any difference between the “pension system” and the “retirement system.” Counsel responded that as a practical matter, the answer was no. Justice Burke then asked whether health insurance premiums paid on a retiree’s behalf were income. Counsel disputed the idea that the protection of the Clause is limited to forms of income, pointing out yet again that the drafters deliberately used a broad and generally understood term – “benefits.” Justice Garman pointed out that the Clause actually protects “benefits of membership” in the system, not just “benefits,” and asked counsel whether the point had any significance? Counsel responded that all “benefits” flowed to the retiree through the system, so the distinction in language had no practical impact. Justice Karmeier asked whether, under the plaintiffs’ theory, a retiree would be locked into a particular level of benefits if benefits were increased? Counsel responded that in the current political climate, he couldn’t imagine that happening, but the answer was no. Justice Garman asked whether, on counsel’s theory, the state could reduce retirees to bare-bones health insurance so long as the premiums cost the retirees nothing. Counsel responded that a definitive answer would have to await another case, but that a substantial cut in the value of the insurance likely would violate the Clause.

Co-counsel for the plaintiffs concluded the opening argument by challenging the Circuit Court’s finding that the class members lacked standing to sue the State on their union’s collective bargaining agreement in Circuit Court. He argued that third party beneficiaries of a collective bargaining agreement were permitted to sue as “parties” to the agreement under the limited exception authorizing such suits. Counsel set out the plaintiffs’ secondary constitutional argument, which is based on the proposition that the 1998 pension bill providing that 20-year retirees would receive their health care insurance free created contractual rights which were impaired in violation of the Contracts Clause of the state constitution by the 2012 amendments. Justice Freeman pointed out that the retirees’ benefit books said that the state could change the terms at any time, and asked counsel how such an equivocal representation could amount to a contractual promise. Counsel pointed out that the benefit books didn’t say that the state reserved the right to change premiums, as opposed to adjusting the exact parameters of what was and was not covered.

Counsel for the State began by emphasizing the strong presumption in the law that legislation doesn’t create enforceable contract rights, given that a contrary view would hamper the legislature’s ability to respond to changing conditions. Counsel argued that nothing in the any of the relevant acts met the high bar necessary to create contract rights.

Justice Thomas noted that retirees’ mandatory premium contributions are quite low now, but wondered whether the State’s position, if it were successful, would allow the state to drive retirees’ contributions much higher, or even abolish the health care insurance benefit for retirees entirely. Counsel responded that there were significant political constraints to stop that from happening, but there was no constitutional barrier to such a development. Justice Thomas asked whether state employees who took early retirement in reliance on the package of promised benefits had any recourse in the State’s view. Counsel responded that nothing in the early retirement statute promised that benefits would stay at their current level forever, and repeated that retirees would have no constitutional cause of action. Justice Thomas asked whether the State believed that the Hawaii decision heavily relied on by the plaintiffs, which found health care benefits protected by a similar pension clause, was simply wrong, and counsel for the State said yes. Counsel argued that the Pension Clause had to be understood in the context of its history, and the Clause arose from a desire to make it clear that all public pension systems are in the nature of voluntary contractual relationships, not a mandatory part of employment. Counsel closed by arguing that there was no special significance to the use of the word “benefits” in the Pension Protection Clause, and disputed that the 2012 amendments rose to the level of a constitutional “impairment” of a contract.

In rebuttal, counsel for the plaintiffs challenged the State’s claim that history of the retirees’ health care system has been one of constant change. Justice Thomas’ question was important, counsel argued; if the State prevailed, there would be nothing to stop the State from shifting far more of the cost of the health care system to retirees, essentially wiping out their pensions in the process. Counsel closed by arguing that the State would contend that the 2012 statute is a complete defense to any claim for breach of contract, and surely that amounted to a constitutional “impairment.”

As I’ve observed before, Kanerva is playing out in the shadow of pension battles yet to come. If the argument this morning is any indication of the Court’s inclination, it seems unlikely that the Supreme Court is about to take the kind of hard-line view of the Pension Clause that would significantly hamper the political branches in grappling with Illinois’ public pension liabilities.

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