District Court Reinstates Retirees to Cost-Free Health Care Under Terms of Current Plan
Peter O’Hara | Bloomberg Law
The United States District Court for the Southern District of Ohio granted the prevailing plaintiffs’ motion for a permanent injunction reinstating their lifetime, contribution-free health care benefits under plans sponsored by M & G Polymers USA, LLC (M&G). Having previously held that plaintiffs ― retirees who had worked at a plant operated by M&G and its predecessors before August 5, 2005 ― had a vested right to the benefits, the Court now found that plaintiffs were entitled to the injunction because: (1) they had prevailed on the merits; (2) absent the injunction, they would suffer irreparable injury, including ongoing quality of life concerns; (3) they would suffer far greater hardship, including denial of benefits and having to pay improper premiums, if the injunction were denied than M&G would if the injunction were granted; and (4) it was in the public interest to impose the burden of coverage upon the private company that bargained to provide the coverage, rather than upon public assistance programs. Because, however, the pertinent collective bargaining agreements (CBAs) did not address the details of the vested benefits and the retirees had accepted modifications to their benefits in the past, the Court ordered that plaintiffs be reinstated into the current version of the health care plan, rather than be provided with more favorable benefits under terms set forth in the CBA.
Plaintiffs’ Health Care Benefits Vested
In their class action complaint, plaintiffs alleged that M&G violated their right to lifetime contribution-free health care benefits by shifting a large part of the health care costs onto plaintiffs. They asserted claims under Section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185, and ERISA §§ 502(a)(1)(B), and 502(a)(3), 29 U.S.C. § 1132(a)(1)(B) and 1132(a)(3).
The district court initially granted M&G’s motion to dismiss the action for failure to state a plausible cause of action. The Sixth Circuit affirmed the dismissal of plaintiff’s claim under ERISA § 502(a)(3), but reversed the dismissal of plaintiffs claim under the LMRA and ERISA § 502(a)(1)(B). Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478 (6th Cir. 2009), discussed in Bloomberg Law Reports® -Employee Benefits, Vol. 2, No. 8 (Apr. 20, 2009).
On remand, the district court conducted a bench trial on the issue of liability and concluded that the CBAs between plaintiffs’ union and a series of employers entitled those who retired before August 5, 2005 with vested retiree health care benefits. As to employees who retired on or after August 5, 2005, however, the Court held that there was an enforceable cap-letter agreement between the union and M&G that permitted M&G to charge affected retirees monthly contributions for their healthcare coverage, even if those contributions became prohibitively expensive. Tackett v. M & G Polymers USA, LLC, No. 07-CV-126, 2011 BL 204117 (S.D. Ohio Aug. 5, 2011).See Ohio District Court Finds Retiree HealthCare Benefits Vested, Bloomberg Law Reports® -Labor & Employment, Vol. 5, No. 35 (Aug. 22, 2011).
Plaintiffs Entitled to Permanent Injunction
Although the Court had previously held that the benefits had vested, it revisited the issue at some length, particularly its prior conclusion that, in reversing the district court’s dismissal for failure to state a plausible claim, the Sixth Circuit had ruled on the merits that the benefits had vested. The Court vigorously defended its interpretation of the Sixth Circuit decision, but also reiterated, that, even if its interpretation was wrong, the prevailing plaintiffs had nevertheless independently demonstrated that they had a vested right to lifetime, uncapped (or contribution-free) medical benefits under the terms of the CBAs.
Applying the traditional four-part test, the Court then found that plaintiffs met the first requirement for an injunction because they had prevailed on the merits of their claims, and it was unlikely that M&G would prevail on appeal. Further, the Court determined that, regardless of any money ultimately awarded them, plaintiffs would suffer irreparable harm absent equitable relief, including quality of life concerns, potentially shortened life spans, ongoing anxiety, and undue strife.
For these same reasons, the Court found that the balance of equities favored plaintiffs who would suffer great hardship without the injunction while M&G would continue improperly charging premiums and denying benefits. The Court also concluded that the enforcement of M&G’s contractual obligations was unquestionably in the public interest, which would also be furthered by transferring the burden of coverage to the private company that bargained to provide such coverage rather than imposing the burden on public assistance programs.
Finally, the Court decided not to require plaintiffs to post a bond, given that plaintiffs’ age and limited financial means outweighed the limited possibility that M&G would prevail on appeal. In so ruling, the Court noted that M&G had prospered from its impropriety for years and presented testimony in support of its liability arguments that the Court recognized as simply false. Thus, the Court held that plaintiffs were entitled to a permanent injunction without posting a bond and turned to what the scope of the injunction should be.
Plaintiffs Entitled to Benefits under Terms of Current Plans
The primary issue the Court had to decide in determining the scope of the injunction was whether plaintiffs should be provided with coverage under the more generous terms of one of the plans set forth in the CBA or under the terms of the plan as it currently existed. To resolve this issue, the Court first looked to the terms of the CBA, applying basic rules of contract interpretation as required by UAW v. Yard-Man, Inc., 716 F.2d 1476, 1479 (6th Cir. 1983). If there was ambiguity in the CBA, the Court would then resort to extrinsic evidence to ascertain what benefits the parties intended to vest. Id.
Plaintiffs relied on a recent district court decision, which held that a class of retirees was entitled to the health-care benefits in effect at the time they vested because: (1) the only circumstances under which the parties had allowed prior modifications to benefits was through a collectively bargained agreement; and (2) a plant shutdown agreement explicitly barred modifications to the retirees’ vested welfare benefits through future negotiations. Reese v.CNH Global N.V., No. 04-CV-70592, 2011 BL 56319 (E.D. Mich. Mar. 3, 2011). The Court, however, found the decision was of limited relevance, given that plaintiffs had not presented evidence of a comparable course of conduct between the parties or any contractual language prohibiting modification of benefits post-vesting.
Instead, the Court looked to the reasoning of prior Sixth Circuit decisions in the Reese case, which held that, under the terms of a CBA with terms comparable to the M&G CBAs, plaintiffs were entitled to lifetime vested health care benefits but not necessarily to the same benefits in effect when the benefits vested. See Reese v.CNH America LLC, 574 F.3d 315, 327(6th Cir. 2009);Reese v.CNH America LLC, 583 F.3d 955 (6th Cir. 2009). Determination of that issue, the Sixth Circuit instructed, would depend on such factors as whether: (1) the retirees had approved prior modifications; (2) the changes the employer made diminished the nature of the benefits (as opposed to any particular benefit itself); and (3) the employer made reasonable changes under a prior course of dealing approach. Id.
Applying this analysis, the Court found that the retirees had tacitly agreed to prior modifications to their benefits, including modifications that enhanced their benefits. Further, unlike the situation in the Reese case, the Court determined, plaintiffs’ union lacked the ability to negotiate retiree benefits and therefore benefit changes could and did occur absent company-union negotiation. Moreover, in the Court’s view, the modifications that would result from using the terms of the current plan were not so significant that they would diminish the essential nature of the benefits.
The Court concluded that the proposition that plaintiffs’ lifetime vested benefits had to “be maintained precisely at the level provided for in the [CBA] . . . [was] not supported by the [CBA], extrinsic evidence provided by the parties or common sense.” Reese, 574 F.3d at 327. Accordingly, the Court held that providing the prevailing plaintiffs with benefits under the current version of the health care plan was appropriate.
For commentary on and analysis of recent litigation involving retiree health benefits claims, please see Retiree Health Benefits Litigation in 2011,Bloomberg Law Reports® – Labor & Employment, Vol. 6, No. 5 (Jan. 30, 2012).
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