Are all disciplinary actions against public employees, up to and including termination, subject to a rebuttable presumption of arbitrability absent an express carve-out in the parties’ collective bargaining agreement?  In the closing days of the May term, the Illinois Supreme Court agreed to address that question, allowing a petition for leave to appeal in Village of Bartonville v. Lopez, a decision from the Third District of the Appellate Court.

Bartonville began in mid-2014 when the police chief of the plaintiff village filed a complaint with the Village’s Board of Fire and Police Commissioners seeking to terminate a police officer.  According to the complaint, the officer had drawn his firearm during a traffic stop and pointed it at a motorist without proper grounds for doing so.

The Village’s police officers were represented by a union, which had entered into a collective bargaining agreement with the Village.  The parties’ CBA described the grievance procedure as “the sole and exclusive procedure for resolving any grievance or dispute which was or could have been raised by an Officer covered by this Agreement or the Union.”  A separate article of the CBA dealt with discipline, and neither expressly included nor expressly excluded disciplinary actions from the scope of the grievance procedure.

Just before the Board heard the chief’s termination complaint, the defendant officer filed a complaint in court seeking a declaratory judgment and injunctive relief, arguing that the Board had no jurisdiction to proceed and the matter must be arbitrated.  Before the trial court could rule, the Board met to address the complaint.  The officer’s attorney challenged the Board’s jurisdiction, but when that challenge was rejected, the officer fully participated in the hearing on the merits.  The Board ultimately ruled that the officer should be terminated.  The union then filed a grievance with the police department challenging the Board’s decision.

Not long after that, the Village filed another complaint, seeking a declaratory judgment and permanent stay of arbitration under the CBA.  The defendants, including the officer, responded by filing a motion to compel arbitration.  The Village answered with a motion for summary judgment, arguing that arbitration was barred by the Municipal Code, the Administrative Review Law and res judicata.  The court granted the Village’s motion for summary judgment, and the defendants appealed.

A divided Appellate Court reversed.  On appeal, the defendants argued that the trial court had believed that arbitration was not required unless the CBA expressly included disciplinary matters within the scope of the grievance procedure.  The correct standard, they argued, was that all matters were presumptively included unless expressly excluded.  The defendants further argued that even if the Municipal Code and Administrative Review Law arguably seemed to exclude arbitration of discipline, they conflicted with the Illinois Public Labor Relations Act, 5 ILCS 315/1, which establishes a presumption of arbitrability unless the parties expressly agree otherwise.

According to the Appellate Court, because arbitration is a “uniquely suitable procedure for settling labor disputes,” the arbitration provisions of collective bargaining agreements must be given a broader construction than similar provisions in routine commercial contracts.  Because the Labor Relations Act reverses the usual presumption against arbitrability, in cases where the parties’ intent is unclear, the matter should be referred to an arbitrator for the threshold determination of what the parties intended.

The Court concluded that the parties’ CBA was unclear on whether or not discipline was subject to the grievance procedure – on the one hand, the actual grievance provision didn’t expressly exclude discipline, but on the other hand, disciplinary matters were addressed in a separate article of the agreement.  Therefore, the Court reversed the trial court with instructions that the court should send the matter to arbitration for a determination of the scope of the grievance procedure.

Presiding Justice O’Brien specially concurred, arguing that the fact that the grievance article didn’t expressly exclude discipline was dispositive, so there was no need for a threshold determination of the scope of arbitration.

Justice McDade dissented, arguing that even though the majority’s arbitration analysis was correct – the ambiguity of the CBA triggered a presumption of arbitration – the officer had waived his right to arbitrate by participating on the merits before the Board, and now res judicata barred arbitration.

We expect Village of Bartonville to be decided this winter.

Image courtesy of Flickr by Ewe Neon (no changes).

Various kinds of tax breaks have become a commonplace tool for city, county and state governments to use in competing to lure new businesses into their jurisdiction, or persuade businesses already there to stay or expand. Last week, the Illinois Supreme Court addressed one of those tools, holding in Moline School District No. 40 Board of Education v. Quinn that a property tax exemption for an aviation firm in Moline County violated the special legislation clause of the Illinois constitution. Our detailed summary of the underlying facts and lower court decisions in Moline School District is here.

The business involved in Moline School District is what’s known in the aviation industry as a fixed based operator, or FBO. FBOs operate at airports, providing support services to general aviation aircraft such as fueling, hangaring, maintenance and repair, aircraft rental and facilities for conferences and flight planning. There are many FBOs in Illinois, a state with nineteen other airport authorities in addition to the one involved in Moline School District.

The FBO involved in Moline School District has three separate operations in the Midwest – Des Moines, Minneapolis and the Quad City International Airport in Moline. Even though the FBO doesn’t own the real estate and improvements it uses at the Quad City Airport, Illinois levies property taxes on its leasehold interest. A few years ago, the FBO decided it wanted to expand, either in Moline or Des Moines. But there was an important difference between the two sites – Iowa did not levy property taxes on the company’s leasehold interest in Des Moines.

As a result, the local Chamber of Commerce asked a state legislator to support legislation to exempt the company’s leasehold interest at the Quad City Airport from property taxes. While the bill was making its way through the legislature, there was an attempt to add a second airport to its provisions, but that amendment failed. The bill was ultimately enacted and signed into law by the Governor.

The plaintiff school district received about $150,000 a year as a direct result of the FBO’s property tax bill. The District filed suit, challenging the property tax exemption as a violation of: (1) the special legislation clause; (2) due process and equal protection; (3) the property tax clause requiring uniform valuation; and (4) the constitutional limitation on property which can be exempted from property taxation. The FBO intervened in the action, and the parties filed cross motions for summary judgment. The Circuit Court rejected each of the School District’s constitutional challenges and granted the FBO’s motion for summary judgment. The Appellate Court reversed, holding that the statute was unconstitutional special legislation.

In an opinion by Justice Karmeier, the Supreme Court agreed with the Appellate Court. The special legislation clause provides that the General Assembly “shall pass no special or local law when a general law is or can be made applicable.” The courts have interpreted the clause as meaning that the legislature cannot confer special benefits or privileges on one person or group and deny the same benefits to others similarly situated. This does not, however, prevent the legislature from addressing a situation where a person or entity is uniquely situated. Assessing a special legislation challenge involves two steps: first, does the legislation discriminate, and second, is the discrimination arbitrary (which is usually assessed under the rational basis test).

The majority concluded that the tax exemption clearly met the first test for special legislation – it exempted FBOS at Quad City International Airport from property taxation – and there was only one. So the case came down to whether or not the exemption was rationally related to a legitimate state interest.

The majority held that the exemption failed the rational basis test. The problem was that there was no requirement in the legislation that the FBO actually use the money saved by the tax exemption for expansion in Illinois. As the Court pointed out, there was nothing to stop the FBO from using the savings to expand in Iowa. If the FBO took the tax exemption and ultimately didn’t expand in Rock Island County, the citizens of the county not only wouldn’t achieve the hoped-for economic benefits, they would be affirmatively injured by the lost revenue.

The FBO argued that its circumstances are unique, but the majority rejected the claim, pointing out that there were other FBOs in the state operating near states with more favorable tax circumstances. Nor was Rock Island uniquely situated, according to the Court. The majority found no evidence of economic needs there which didn’t equally exist in many other parts of the state. Ultimately, the majority concluded that it saw nothing which would justify distinguishing FBOs operating at the Quad City Airport from FBOs at other Illinois airports or, for that matter, from other Illinois businesses operating near more tax-friendly jurisdictions.

Justice Theis dissented, writing that the majority had “paid only lip service” to the duty to uphold legislation when reasonably possible to do so. Justice Theis argued that in fact, the School District had failed to satisfy either of the two prongs on the special legislation test: that the legislation discriminated, or that the classification was arbitrary. The FBO at issue had provided evidence with its cross-motion for summary judgment which “indicated that the company was arguably in a unique situation.” The FBO offered testimony that Rock Island County was the only county in Illinois with a major airport bordering Iowa, which does not tax FBO leaseholds. The School District, in contrast, “seemed to assert that FBOs” at the Quad City Airport “are similar to other FBOs in Illinois simply because there are other FBOs in Illinois.” The trial court had been persuaded by the FBO’s “stronger and more supported argument” that the FBO was in a unique position, but the Appellate Court, according to Justice Theis, had “ignored that evidence.”

Justice Theis criticized the majority’s reasoning that there are other FBOs conducting business near state borders, arguing that the majority had disregarded the limitations on judicial notice, and had also turned the presumption in favor of constitutionality on its head by disregarding the School District’s failure to present any evidence about those other FBOs’ circumstances. The FBO offered an economic impact summary from the Chamber of Commerce concluding that the property tax exemption would put Illinois and Iowa on an equal footing for an expansion project. Justice Theis concluded that the tax exemption had been based upon a reasonable judgment about the economic impact of the project and the needs of Rock Island County – a judgment which the legislature was certainly free to make.

Image courtesy of Flickr by Rennett Stowe (no changes).

Can the Cook County Board of Commissioners authorize the County Inspector General to issue subpoenas for documents directly to the County’s elected officials, and compel those officials to cooperate with an IG investigation? The Illinois Supreme Court has agreed to decide that issue in Blanchard v. Berrios, an appeal from the First District, Division Two of the Appellate Court. Blanchard turns on the scope of Cook County’s home rule authority under Illinois law, and particularly upon the intersection between investigating fraud and misconduct – certainly an area of local concern – and tax assessments, which is perhaps not a local area.

The Inspector General’s office was created by the Board of Commissioners to investigate fraud, corruption and misconduct among the County’s elected officials. In late 2013, the IG’s office issued a subpoena to the Cook County Assessor calling for production of all documents relating to homeowners exemptions granted for two specific addresses between 2005 and 2012. The assessor objected, the IG filed suit, and the parties filed cross-motions for summary judgment. The trial court entered an order finding for the IG and ordering the Assessor to turn over the documents.

On appeal, the Assessor argued that the Board could validly assign new duties to elected officials (here, the elected officials’ duty to cooperate with the IG’s investigation) only to the extent permitted by its home rule authority. Although the Supreme Court had held in Chicago Bar Association v. County of Cook that tax assessment didn’t “pertain to the county’s local government and affairs” so as to fall within home rule authority, the First District concluded that the challenged ordinance didn’t relate to assessment – it related to corruption. The courts have suggested that a similar ordinance in Chicago was valid, and courts in other states have held that home rule units have the power to investigate corruption in public officials, the court noted.

The Assessor also claimed that the Board lacked the power to authorize the IG to issue subpoenas. But home rule authority extends to anything of local concern absent a specific and express limitation imposed by the legislature, and the Assessor was unable to point to any statute denying home rule entities the power to delegate their subpoena power.

Finally, the Assessor argued that the ordinance unconstitutionally infringed on the State’s Attorney’s power to convene grand juries and prosecute crimes. The Court summarily rejected that argument, pointing out that nothing in the ordinance authorized the IG to do either one; rather, he or she was simply given the power to notify the appropriate law enforcement authority if evidence of criminal activity was found.

We expect a decision in Blanchard this winter.

Image courtesy of Flickr by Daniel X. O’Neil (no changes).

Last month, the Illinois Supreme Court added to its rapidly increasing jurisprudence on the state constitution’s pension protection clause, delivering a mixed verdict for transit authority retirees, affirming in part and reversing in part in Matthews v. Chicago Transit Authority. Our detailed summary of the underlying facts and lower court holdings is here. Our report on the oral argument is here.

The individual plaintiffs in Matthews are five current and retired employees of the Chicago Transit Authority, each of whom began working for the CTA before 2001. Before May 1980, the CTA contributed up to $40 per month for each retiree’s health care premium. At that time, an arbitration panel ordered the CTA Retirement Plan to increase its contribution to $60 per month through the end of 1980, and to $75 per month thereafter. In 2007, another arbitration panel directed that a Retiree Health Care Trust be established. The panel directed that retired employees should contribute up to 45% of the total amount expended under the Plan for their health care, and that the trustees have the discretion to increase or decrease contribution and benefit levels. The panel also directed that current employees contribute to their health care costs through a payroll tax equal to 3% of their compensation. On or about February 2009, the Health Trust Board instituted a “plan redesign” requiring retirees hired before September 5, 2001 to pay 45% of the total cost of their health care benefits.

The plaintiffs sued the CTA, the Retirement Plan for CTA Employees, the Plan’s Trustees, and various other entities, asserting claims for breach of contract, promissory estoppel, breach of fiduciary duty and declaratory relief. One plaintiff sought to represent a class – referred to in the opinion as Class I – who began working before September 5, 2001 and retired before January 1, 2007. The remaining plaintiffs sought to represent a class which began working before September 5, 2001, but retired after January 1, 2007 (Class II).

The circuit court dismissed the complaint for failure to state a claim. The Appellate Court affirmed in part and reversed in part, holding that CTA retirees had a vested right to receive retiree health care benefits. The Appellate Court further held that retired CTA employees were entitled to pursue their claims for promissory estoppel.

In an opinion by Justice Freeman, the Supreme Court affirmed in part and reversed in part. Before the Court, the defendants argued that all plaintiffs lacked standing because they were represented by the Transit Unions during the collective bargaining process. The Court agreed that the CTA recognizes the transit union as the sole and exclusive collective bargaining agent for the employees. Ordinarily, a member of the union may file suit to challenge an arbitration award only if the union breached its duty of fair representation – an allegation not made by the complaint. Since the Class II plaintiffs who retired post-2007 were indisputably represented by the union during the negotiations which led to the arbitration award, the Class II plaintiffs lacked standing.

The plaintiff seeking to represent Class I, however, was another matter. He was retired by the time of the negotiations ending in the arbitration award. Unions may represent the interests of retirees in collective bargaining if retirees agree to it. Since there was no indication in the complaint that the plaintiff seeking to represent Class I had agreed to have the union represent him post-retirement, that plaintiff had standing to proceed.

The Court turned next to the Class I representative plaintiff’s argument that the 2004 CBA created vested rights to paid health care benefits. The Appellate Court agreed. The Supreme Court reversed in this regard, holding that the Pension Protection Clause of the state Constitution does not transform a nonvested right to retirement benefits into one that is vested. “[S]ection 5 of article XIII does not establish any ‘vesting rules,’” the Court wrote. “Rather, it simply protects the actual contract that governs the retirement system membership.”

The plaintiff seeking to represent Class I argued that the union lacked the authority to agree to a diminishment of retiree health care benefits because a union cannot agree to waive its members’ constitutionally protected rights. The Court disagreed, finding that “a union can waive statutory and economic rights on behalf of its members.” The plaintiff further argued that pension rights couldn’t be the subject of collective bargaining because they were individual statutory rights. The Court disagreed, finding that the argument was “inconsistent with the overall purpose of collective bargaining.”

The Court explained that although contractual obligations generally cease upon the termination of a particular CBA, exceptions could be made pursuant to the parties’ mutual intent. Pointing to the language in Section 20.12(a) of the Retirement Plan Agreement stating that “This benefit terminates when the retiree attains age 65,” the Court concluded that the parties had indeed intended that benefits survive the CBA. Ultimately, because the plaintiff seeking to represent Class I had retired before the 2004 CBA expired, and was not a member of the bargaining unit at the time of the 2007 arbitration, he had an enforceable, vested right to continued health care benefits which was protected by the Pension Protection Clause of the state Constitution.

The Court concluded by briefly rejecting the Class I plaintiff’s claim for promissory estoppel, noting that the plaintiff had not pointed to any particular statement through which the Transit Authority had promised to continue paying benefits, and any such statement by an individual employee would be ultra vires without Board approval anyway.

In sum, the Court held that the Class I plaintiff could proceed with his claims for breach of contract and violation of the Pension Protection Clause, but not with his claim for promissory estoppel. Dismissal of the Class II plaintiffs was affirmed.

Justice Theis specially concurred with the judgment, declining to join only the majority’s discussion of whether or not the Class I plaintiffs’ claims were “vested.” Justice Karmeier also specially concurred, both joining in Justice Theis’ concurrence and adding the additional comment that the majority should not have discussed the authority of unions to waive their members’ constitutionally protected, statutory or economic rights in a collective bargaining agreement.

Image courtesy of Flickr by Toshiyuki Imai (no changes).