Blogging Employee Benefits

February 25, 2006

Summary Judgment Denied in CBA Retiree Health Case

Filed under: Collective Bargaining, Litigation, OPEBs — Fuguerre @ 12:20 pm

Language in an ERISA plan must be given its common and ordinary meaning, interpreted in the way that a reasonable person in the position of the plan participant would have understood the words.

A district court has denied an employer’s request for declaratory judgment that would have recognized the employer’s legal right to unilaterally modify or terminate retiree health benefits provided under a collective bargaining agreement. The court also denied union requests for summary judgment to compel arbitration and exclude the employer’s expert testimony. [Rexam v. USW and IAM et al, D. Minn., Civ. 03-2998 ADM/JJG]

Rexam is a large aluminum beverage can manufacturer that employs members of the United Steel Workers of America (USW) and the International Association of Machinists and Aerospace Workers (IAM) covered under collective bargaining agreements with Rexam’s predecessors. In 2002 Rexam decided to increase retirees’ out-of-pocket expenses under its retiree prescription drug benefit plan. When the USW and IAM objected to the proposed changes, Rexam filed a lawsuit seeking declaratory judgment that it had the legal right to make the amendment. The unions filed counterclaims, alleging violations of the Labor Management Relations Act and the Employee Retirement Income Security Act. In October 2003, the district court denied a USW motion to dismiss Rexam’s lawsuit. In May 2005 three subclasses of retirees were certified, denying a Rexam motion to certify a single class since at least 11 different collective bargaining agreements would need to be considered in judging the dispute. In August 2005, the court recommended a jury trial for the steelworkers’ LMRA claim but a bench trial for its ERISA claim.

In the latest round of this extended dispute, the district court has denied Rexam’s motion for declaratory judgment. Rexam argued that the retiree welfare benefits were not vested, pointing to the absence of express vesting language in plan documents, reservation of rights clauses, continuation clauses, coordination of benefits clauses, and duration clauses. The district court addressed each argument in detail –

  • Express Vesting Language – Rexam overstates 8th Circuit law, according to the district court, stating that the issue depends on whether the parties intended benefits to vest, a determination for which the absence of a specific word is relevant without being dispositive. Conversely, language in several plan documents and SPDs informing retirees that benefits would continue until death, while supporting the unions’ claim that benefits were vested, could not be viewed in a vacuum, rather needed to be considered in the context of all provisions of the plan documents and CBAs.
  • Reservation of Rights (RR) Clauses – Most (although not all) plan documents included a clause reserving the employer’s right to terminate or amend benefits, which Rexam argued to be settled law as being inconsistent with a claim of vested benefits. Here, however, the court found the RR clauses ambiguous, since they included qualifications that would be interpreted as restricting the company’s rights to situations where the modification was required by a change in the law. The most recent, less ambiguous RR clause was rejected, since it had not be adequately reflected in plan SPDs.
  • Continuation Clauses – CBAs between Rexam and the union included statements that the company would continue to pay the cost of the plan. Continuation clauses have been recognized by the 8th Circuit as evidence of non-vesting, since otherwise such continuation clauses would be duplicative promises. The district court views that evidence as “slight,” to be considered in the context of the entire contract.
  • Coordination of Benefits Clauses – Plan documents and CBAs included provisions allowing benefits to be reduced if a third party, such as Medicare, provided duplicate benefits. Although 8th Circuit law has viewed a coordination of benefits clause evidence of non-vesting, again the district court sees the provision to be only one factor to be considered in the context of all provisions of the plan documents and the CBAs.
  • Duration Clauses – CBAs between Rexam and the unions included explicit statements that retiree welfare benefits were to remain in effect only until a certain date, usually either the CBA termination date or 90 days thereafter. Although the 8th Circuit has found duration clauses to be evidence of non-vesting, again the district court sees the provision to be only one factor to be considered in the context of all provisions of the plan documents and the CBAs.

Considered in the context of the entirety of the plan documents and CBAs, the court found the record ambiguous on intent to vest. Although there existed no express vesting language, there was language suggesting that benefits continue until a retiree’s death. Neither did the duration and coordination of benefits clauses outweigh the until-death language, while the continuation and RR clauses were found too ambiguous to aid resolution. Although both sides offered extrinsic evidence for their positions, the district court ruled that sufficient disputed facts made the case inappropriate for summary judgment for Rexam.

The unions also sought summary judgment, moving to exclude portions of Rexam’s expert testimony, although they acknowledged that the request would normally be sought as a motion in limine at trial. The district court denied the motion, although the court did advise that it would generally restrict expert witnesses from testimony explaining what the law provides.

Finally, the district court denied an IAM motion for summary judgment on its counterclaim to compel arbitration of the vesting issue, finding that IAM had waived its rights to arbitration by delay and inconsistent actions.

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