Express Contract's Existence Bars Implied Contract Claim
MARCATANTE v. CITY OF CHICAGO (August 24, 2011)
The City of Chicago had Collective Bargaining Agreements between 1999 and 2003 with a coalition of trade unions representing certain City employees. When the parties were unable to agree on 2003-2007 CBAs by the then-current CBAs’ expiration date, they entered into a letter agreement. The agreement extended the terms of the then-current agreements. The City also agreed that any wage increase it ultimately agreed to would be retroactive to July 1, 2003, unless otherwise agreed. Months later, while negotiations were still ongoing, the City offered certain employees an incentive to retire early. Some City employees took advantage of the offer and retired in early 2004. The City and the unions reached agreement on the 2003-2007 CBAs in July of 2005. Although the City agreed to a pay raise, it made the increase retroactive to 2003 only for certain employees. The early retirees were not included. A class of retired employees brought suit alleging due process and equal protection violations as well as state law claims for breach of implied contract and breach of express contract. On cross motions for summary judgment, Judge Kocoras (N.D. Ill.) found for the City on the due process, equal protection, and express contract claims but found for the plaintiffs on the implied contract claim and awarded over $1.7 million in damages. The City appeals on the implied contract claim. The plaintiffs cross-appeal on the due process and express contract claim.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Tinder affirmed in part and reversed in part. The Court first struck plaintiffs' cross-appeal as improper. A cross-appeal is appropriate only when a party wants to alter the district court's judgment. The plaintiffs are not seeking any modified relief on the breach of contract appeal. Although they did seek modified relief under the due process claim, they did not do so until their reply brief -- and so waived that claim. As an aside, the Court noted its agreement with the district court's dismissal of those claims on the merits. The Court turned to the implied contract claim, on which the plaintiffs prevailed. An implied-in-fact contract is created by law and is based on the parties' conduct. The contract is inferred from the surrounding facts and circumstances and gives effect to an unstated promise. However, an implied contract cannot exist where an express contract already governs the same subject. Here, the Court found that the subject matter -- plaintiffs' pay rate -- was governed by the Collective Bargaining Agreements. The fact that retroactive increases were given in similar situations in the past is irrelevant, as is plaintiffs' hope for such an increase. Given the existence of the express contract, there can be no implied contract. Furthermore, the letter agreement is unambiguous and only provided that agreed pay raises would be retroactive. Since the parties did not agree on a pay raise for the retirees, there was nothing to make retroactive. An implied-in-law contract is not really a contract but an equitable claim for unjust enrichment. But, just like an implied-in-fact contract, an implied-in-law contract cannot coexist with an express contract on the same subject matter.
In 1994, a student sued East Moline School District (the "District"). The District made a claim against the Illinois School District Agency (the "Agency"), an Illinois school cooperative formed for the purpose of providing insurance to its members. The Agency's third-party administrator, the Martin Boyer Company (“MBC”), processed and allowed the claim. The Agency paid for the District's defense until a new third-party administrator, two years later, determined that the claim was not covered. The District settled the student's lawsuit and sued the Agency to recover its defense costs. The District alleged a) a violation of the Illinois Insurance Code, b) waiver, and c) estoppel. The Agency prevailed. The Agency then sued MBC to recover the amount it had paid the district in defense costs due to MBC’s initial erroneous determination of coverage. The Agency also made a claim for the same injury under an errors and omissions policy issued by Pacific Insurance Company. The Agency sued when Pacific denied the claim, seeking both the costs of defending the District's lawsuit and the cost of pursuing MBC for reimbursement. The court ordered Pacific to reimburse the Agency approximately $100,000 for defending against the District’s Illinois Insurance Code claim but not for defending against the waiver and estoppel claims. It also granted summary judgment to Pacific on the MBC claim. On a first appeal, the Seventh Circuit vacated the summary judgment on estoppel and remanded for the court to consider whether the estoppel claim was equitable, which was covered, or contractual, which was not covered. On remand, the court concluded that the District raised both equitable and contractual estoppel. The Agency was therefore entitled to reimbursement on the estoppel claim. At about the same time, the Agency prevailed in its case against MBC and received over $700,000. On Pacific's motion, the court concluded that the judgment fully compensated the Agency for its losses and granted summary judgment to Pacific. The Agency appeals. Pacific then moved to amend the court's initial $100,000 award on the ground that the first appeal somehow vacated that award. The court granted the motion. The Agency appeals.