Friday, May 27, 2016

The Disputed Concept Called “Consideration” in Illinois Public Pensions





From Amending Pension and Retirement Rights through “Consideration” (Posted August 10, 2012):

Simply stated, “Consideration is when a claimant promises something in exchange for the defendant’s promise.”

Consideration should have “value” that is fair to both sides. However, contracts supported by consideration are often one-sided, advantageous arrangements. We could imagine that any agreement with the Illinois General Assembly regarding “guaranteed” funding to the pension systems would not be a “valid” consideration for public employees, for example, because it would be in exchange for reductions of originally-vested benefits guaranteed by the Illinois Constitution.

What’s more, there is no question whether legislators will renege on a new promise made to public employees. The question is how soon will it happen again. Legislators can rewrite or undo any bill they pass. A conversation with any representative will verify this incongruous reality. Any "Quid Pro Quo" guaranteed by legislators will inevitably become a "Failure of Consideration."

Take for instance that “Funding” public employees’ pensions would have to be written into the Illinois Pension Code (40 ILCS 5/) to be considered a “benefit” guaranteed by the state constitution. In this way, consideration would create a contractual cause of action for the full enforcement of that expectation – an irrevocable binding contract between the state (legislators) and public employees (or would it?). This will never occur, however, because House Speaker Michael Madigan and other legislators also want to shift the normal costs of the teachers’ retirement pension to local school districts and property taxpayers, and this proposal reveals rather obvious legislative intentions.


From Consideration, Senate Bill 1313 and Senate Bill 0001 (Posted March 7, 2013):

Consideration: “the inducement to a contract, something of value given in return for a performance or a promise of performance by another, for the purpose of forming a contract…” (Law Dictionary).

According to National University of Singapore Professor Mindy Chen-Wishart, “The consideration doctrine is a moving target… Different [understandings] yield different [interpretations]… Each conception can be contradicted by another… Courts have considerable latitude in determining whether to find consideration (or not), and hence whether to enforce a promise (or not)… A contract supported by consideration can still be set aside for… misrepresentation, duress, or undue influence or its contents may be supplemented by implied terms or [be] partially invalidated because of unfairness. In these cases, the presence of serious inadequacy of consideration will usually be the major, although not the sole, factor… It would be highly undesirable to allow public officials to extract benefits in return for the performance of their existing legal duties” (Contract Law).

As stated by Professor of Law Claude D. Rohwer (Emeritus) and Professor of Law Anthony M. Skrocki (Emeritus), “Consider a promise by an employer to pay a retirement pension to an employee who has already worked for a company for 30 years… Under American law and the law of other common law systems, the question that must be answered is whether this promise to pay a pension [and COLA, health care…] was made as part of a bargain. A promise to pay a pension [and COLA, health care…] is supported by valid consideration if it is made as part of the employment contract. Thus, if the employee is required to work for a… period of time in exchange for the promised pension [COLA and health care], there is a bargain...” (Contracts in a Nutshell). 

As stated earlier, contracts supported by consideration are often one-sided, advantageous arrangements. In Illinois, we can imagine that any agreement with the General Assembly regarding a “guaranteed” funding to the pension systems, for example, would not be a “valid” consideration for public employees, especially since it would be in exchange for reductions of originally-vested benefits guaranteed by the Illinois and U.S. Constitutions.

What’s more, there is no question whether legislators will renege on any new promise made to public employees. Legislators can rewrite or undo any bill they pass. For instance, the “funding” of the public employees’ pensions and offering of the health care option would have to be written into the Illinois Pension Code (40 ILCS 5/) to be considered “benefits” protected by the Illinois Constitution. In this way, consideration would create a contractual cause of action for the full enforcement of that expectation – an irrevocable binding contract between the state (legislators) and public employees. Both guaranteed funding and health care assurances are quite doubtful.

From The Concept of “Consideration” in Illinois Senate Bill 1 (Posted January 3, 2014):

 

Concerning the Non-negotiated Reduced Contribution Rate:

Reducing the contribution rate for current teachers by one percent was not a consideration. It was not negotiated; moreover, modification of contract principles for retirees was also without consent. “It is well settled that a contract, once made, must be performed according to its terms, and that any modification of those terms must be made by mutual assent and for consideration” (Ross v. May Co., 377 Ill. App. 3d 387, 389 (2007)).
 
Concerning the Non-guaranteed “Guaranteed Funding”:  

Indeed, any agreement with the Illinois General Assembly regarding “guaranteed” funding to the pension systems would not be a “valid” consideration for public employees because it would be in exchange for reductions of originally-vested benefits assured by the Illinois Constitution. Furthermore, there is no question that with the passage of Senate Bill 1, Illinois legislators have reneged on a contractual promise made to public employees and retirees based upon many similar antedated court cases. 
We are already aware that legislators can rewrite or undo any bill they pass. A conversation with any representative will verify this incongruous reality; consequently, any "Quid Pro Quo" (one thing in return for another) guaranteed by legislators can also become a "Failure of Consideration." Even if the funding of public employees’ pensions is written into the Illinois Pension Code (40 ILCS 5/) and considered a “benefit” guaranteed by the State Constitution, legislators can (and will) create another bill to challenge the language of the contract. 

According to Elaine Nekritz: “The so-called pension payment guarantee has wiggle room. If the state fails to make a pension payment, a retirement system could file action in the Illinois Supreme Court to compel the state to make the required payment. But if the state faces a crisis, it could simply vote to change what the required payment would be; [thus], effectively working around that guarantee.”

Despite what Nekritz believes, it has been ruled that “No principle of law permits [the Illinois General Assembly] to suspend constitutional requirements for economic reasons, no matter how compelling those reasons may seem” (Jorgensen v. Blagojevich, 211 Ill. 2d 286, 316 (2004)). (Consider that House Speaker Michael Madigan and Senate President John Cullerton depended on case law when suing Governor Patrick Quinn for stopping their remuneration because they had not passed so-called "pension reform" at that time).

“Neither the legislature nor any executive or judicial officer may disregard the provisions of the constitution even in case of a great emergency” (People ex rel. Lyle v. City of Chicago, 360 Ill. 25, 29 (1935)).  Unless, of course, judges ignore case law.

Undeniably, “the consideration doctrine yields different [interpretations]… Courts have considerable latitude in determining whether to find consideration (or not), and hence whether to enforce a promise (or not)… [Nonetheless], it would be highly undesirable to allow public officials to extract benefits in return for the performance of their existing legal duties” (National University of Singapore Professor Mindy Chen-Wishart, Contract Law). 

In Illinois, the Supreme Court “has consistently invalidated amendments to the Pension Code where the result is to diminish benefits” (McNamee v. State, 173 Ill. 2d 433, 445 (1996)). “Any alteration of the pension system amounts to a modification of an existing contract between the State (or one of its agencies) and all members of the pension system, whether employees or retirees. A member is contractually protected against a reduction in benefits” (Kuhlmann v. Board of Trustees of the Police Pension Fund of Maywood, 106 Ill. App. 3d 603, 608 (1st Dist. 1982)).

Let us remain confident the Supreme Court judges will uphold the Illinois and U.S. Constitutions as they have in the past; that these judges are not capable of illegal and immoral thievery like the political opportunists who voted for SB 1 (from Illinois Senate Bill 1, the So-called “Pension Reform”Bill (or Attempt to Break a Constitutional Contract with Public Employees and Retirees)).

For a précis (Antedated Court Cases), Click Here. 

The aforementioned, predated court cases are from Fitzgerald, John M. and Katherine M. O’Brien. “Four Things Every Retired Teacher Should Know about the Pension Protection Clause of the Illinois Constitution.” Tabet, DiVito & Rothstein LLC. PowerPoint presentation. IRTA, 21 Oct 2013.


From Can the Unions Bargain Away Constitutionally-Guaranteed Benefits through Consideration? (Posted March 25, 2016):

In Illinois, the Supreme Court “has consistently invalidated amendments to the Pension Code where the result is to diminish benefits” (McNamee v. State, 173 Ill. 2d 433, 445 (1996)). “Any alteration of the pension system amounts to a modification of an existing contract between the State (or one of its agencies) and all members of the pension system, whether employees or retirees. A member is contractually protected against a reduction in benefits” (Kuhlmann v. Board of Trustees of the Police Pension Fund of Maywood, 106 Ill. App. 3d 603, 608 (1st Dist. 1982)).

Here are three irrefutable arguments:

2014   Kanerva v. Weems (July 3):

The Pension Protection Clause makes it “clear that if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the State’s pension or retirement systems, it cannot be diminished or impaired… [The State of Illinois or anyone else] may not rewrite the Pension Protection Clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve... [P]ension benefits are insulated from diminishment or impairment by the General Assembly…” (Kanerva v. Weems, 2014 IL 115811).

2015   MARY J. JONES et al., Appellees, v. MUNICIPAL EMPLOYEES’ ANNUITY & BENEFIT FUND OF CHICAGO et al., Appellants (March 24):

“…In this case, it is undisputed that the unions were not acting as authorized agents within a collective bargaining process. Thus, we need not resolve whether the vote taken by union representatives as expressed in the Brandon affidavit bound members of the Funds in a collective bargaining process. Rather, we agree with the trial court that ‘these negotiations were no different than legislative advocacy on behalf of any interest group supporting collective interests to a lawmaking body.’ The individual members of the Funds have done nothing that could be said to have unequivocally assented to the new terms or to have ‘bargained away’ their constitutional rights. Accordingly, nothing in the legislative process that led to the enactment of the Act constituted a waiver of the Funds members’ constitutional rights under the pension protection clause… The judgment of the circuit court declaring Public Act 98-641 to be unconstitutional and permanently enjoining its enforcement is affirmed.”

“[Furthermore, consider that] in the context of the collective bargaining process for public employees, employees designate a particular union as their exclusive agent for collective bargaining negotiations. See 5 ILCS 315/6 (West 2014). The cases that defendants rely upon to support a bargained-for exchange argument involved agreements reached through the collective bargaining process. See Ballentine v. Koch, 674 N.E.2d 292, 296 (N.Y. Ct. App. 1996) (“[B]ecause plaintiffs designated the PBA as their agent for the collective bargaining negotiations at issue here and were thus bound by its actions taken on their behalf during the negotiation process [citation], the PBA’s waiver of the constitutional protections of [New York’s pension protection clause] is valid as to plaintiffs ***.”); Schacht v. City of New York, 346 N.E.2d 518, 519 (N.Y. Ct. App. 1976) (“Plaintiff, having designated the union to be her agent for collective bargaining purposes, is bound by agreements made by that union on her behalf”)…” (Jones v. Municipal Employees' Annuity and Benefit Fund, Circuit Court). The Illinois Supreme Court affirmed the decision on March 24, 2016: (Jones v. Municipal Employees' Annuity & Benefit Fund, 2016 IL 119618).

2015   Doris Heaton, et al. v. Pat Quinn, in his capacity as Governor of the State of Illinois, et al. (May 8):
“…The concerns of the delegates who drafted article XIII, section 5, and the citizens who ratified it have proven to be well founded. Even with the protections of that provision, the General Assembly has repeatedly attempted to find ways to circumvent its clear and unambiguous prohibition against the diminishment or impairment of the benefits of membership in public retirement systems. Public Act 98-599 is merely the latest assault in this ongoing political battle against public pension rights. As we noted earlier, through that legislation the General Assembly is attempting to do once again exactly what the people of Illinois, through article XIII, section 5, said it has no authority to do and must not do… The judgment of the circuit court declaring Public Act 98-599 to be unconstitutional and permanently enjoining its enforcement is affirmed” (Heaton v. Quinn, 2015 IL 118585).

So can the Unions and the Illinois General Assembly Bargain Away Constitutionally-Guaranteed Benefits through Consideration for Retirees?

The answer is unequivocally NO regarding retirees. Retirees are not part of the collective bargaining process, only active employees are. However, some people believe that the Illinois Supreme Court had suggested that a consideration supported by collective bargaining for current employees is a possibility (Matthews v. Chicago Transit Authority, 2016 IL 117638).
 
Some people believe that a legitimate consideration means not diminishing an already existing constitutionally-guaranteed benefit. I am one of those people; however, my strongest beliefs have always been based upon moral perspectives reinforced by the most current legal analyses.
-Glen Brown

P.S.

“…[A] contract right becomes vested when the employee has fulfilled all of the necessary qualifications and obligations for enjoyment of the right, [as in the case of retirees]. Lawrence, 152 Ill. App. 3d at 197-98 (quoting Kulins, 121 Ill. App. 3d at 525-27); see also Navlet v. Port of Seattle, 194 P.3d 221, 237 (Wash. 2008) (en banc)… Where all of the requisite specifications for the present or future enjoyment of a right have been achieved, the right is considered to be vested…” Black’s Law Dictionary 1699 (9th ed. 2009). (qtd. in Matthews v. CTA, 2016 IL 117638).


1 comment:

  1. From a Memorandum by Gino L. DiVito and John Fitzgerald to the then Governor of Illinois, Pat Quinn, May 5, 2010:

    “…When does a State employee earn the right to have his pension calculated in a certain way? Those decisions have been unanimous: ‘Vesting of an employee’s rights in the system occurs either at the time the employee entered the system or in 1971, when the Illinois Constitution became effective, whichever is later.’ Carr v. Bd. of Trustees of Police Pension Fund of Peoria, 158 Ill. App. 3d 7, 8 (3d Dist. 1987); see also Schroeder v. Morton Grove Police Pension Bd., 219 Ill. App. 3d 697, 700 (1st Dist. 1991); Hannigan v. Hoffmeister, 240 Ill. App. 3d 1065, 1073 (1st Dist. 1992); Barber v. Bd. of Trustees of Vill. of S. Barrington Police Pension Fund, 256 Ill. App. 3d 814, 820 (1st Dist. 1993 (same, quoting Carr, 158 Ill. App. 3d at 8)…

    “Thus, a State employee’s pension rights are ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system.’ Di Falco v. Bd. of Trustees of Firemen’s Pension Fund of Wood Dale Fire Protection Dist. No. 1, 122 Ill.2d 22, 26 (1988); see also McNamee v. State, 173 Ill.2d 433, 439 (1996); People ex rel. Sklodowski v. State, 182 Ill.2d 220, 229 (1998)…

    “[T]he Pension Protection Clause was intended to protect State employees ‘against abolishing their rights completely or changing the terms of their rights after they have embarked upon the employment ─to lessen them.’ See Felt, 107 Ill.2d at 162 (quoting 4 Record of Proceedings, Sixth Illinois Constitutional Convention 2929)…

    “Subsequent Illinois Supreme Court decisions are even clearer on this point. See McNamee, 173 Ill.2d at 439 (pursuant to the Pension Protection Clause, a State employee’s participation in a pension plan is ‘an enforceable contractual relationship’ that is ‘governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system’); see also Sklodowski, 182 Ill.2d at 229…

    “[T]he Pension Protection Clause does not limit itself…; neither the phrase ‘previously earned,’ nor any equivalent of it, appears anywhere in the Pension Protection Clause. Furthermore…, a State employee earns the right to have his pension calculated in a certain way when he enters the retirement system. Accordingly, a superficial distinction between ‘previously earned’ benefits and prospectively earned benefits does not answer the question at hand. Nothing in the Pension Protection Clause suggests otherwise…

    “Kraus held that the Pension Protection Clause ‘prohibits legislative action which directly diminishes the benefits to be received by those who became members of the pension system prior to the enactment of the legislation, though they are not yet eligible to retire.’ See Kraus, 72 Ill. App. 3d at 849… Kraus also noted… that a State employee may agree, ‘for consideration, to accept a reduction in benefits.’ Id. at 849... [Furthermore], an end run around the Pension Protection Clause is directly prohibited by Kraus. As that decision explains, the legislature cannot ‘directly’ diminish the pension rights of current State employees, and legislative action that incidentally affects pension rights is permissible only if it is ‘directed toward another aim.’ See Kraus, 72 Ill. App. 3d at 849… [T]o directly diminish the pension rights of current State employees… would therefore violate the Pension Protection Clause…”

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