Larry Lewis v. Allegheny Ludlum Corp ( 2014 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 13-3636
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LARRY LEWIS; GREG BITTINGER, on behalf of themselves and others similarly
situated; KARL BUDAY; GENE F. DAUM; RICHARD F. KUSHKOWSKI;
JOHN CROCKER; KURT SZYMANSKI; ROBERT KLUGH, SR.,
Appellants
v.
ALLEGHENY LUDLUM CORPORATION;
ALLEGHENY TECHNOLOGIES INCORPORATED
______________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D.C. No. 2-11-cv-01619)
District Judge: Hon. Joy Flowers Conti
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Submitted Under Third Circuit LAR 34.1(a)
May 15, 2014
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Before: SMITH, VANASKIE and SHWARTZ, Circuit Judges
(Filed: August 27, 2014)
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OPINION
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SHWARTZ, Circuit Judge.
Plaintiffs, retired employees of Allegheny Ludlum Corporation (“Allegheny
Ludlum”), appeal the dismissal of their putative class action against Allegheny Ludlum
and Allegheny Technologies Incorporated (collectively, “Defendants”), alleging breach
of contract under both the Labor Management Relations Act (“LMRA”) and the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and breach
of fiduciary duty under ERISA. For the reasons set forth below, we will affirm.
I.
As we write principally for the benefit of the parties, we recite only the essential
facts and procedural history. Plaintiffs were members of the United Steelworkers union
(“USW”). USW had collective bargaining agreements (“CBAs”) with Defendants. The
CBAs stated that the members’ insurance benefits were set forth in certain agreements,
which were incorporated by reference into the CBAs. The health insurance benefits for
retirees were set forth in the Program of Hospital-Medical Benefits for Eligible
Pensioners and Surviving Spouses (“PHMBs”). Each PHMB from 1981 through the
present contained the following “Continuation of Coverage” provision:
Any pensioner or individual receiving a Surviving Spouse’s benefit who
shall become covered by the Plan established by this Agreement shall not
have such coverage terminated or reduced (except as provided in the Plan)
so long as the individual remains retired from the Company or receives a
Surviving Spouse’s benefit, notwithstanding the expiration of this
Agreement, except as the Company and the Union may agree otherwise.
App. 2151 (emphasis added); see also App. 1816-17, 1871, 1956, 2040, 2045-46, 2048-
2
49.
Certain Plaintiffs opted for early retirement pursuant to the Transition Assistance
Program (“TAP”). The 2004 CBA, in which Defendants and USW agreed to the terms of
the TAP, stated that TAP retirees were entitled to the health benefits offered “under the
PHMB of the Allegheny Ludlum CBA.” App. 1415. Thus, all Plaintiffs are covered by
the PHMBs.
Prior to 2008, retirees were not required to pay for certain types of coverage under
the PHMBs, but on October 24, 2007, Defendants sent a letter to Plaintiffs and other plan
participants announcing that they had agreed with USW that those “no cost” provisions
would be replaced by coverage that required premium payments, effective January 1,
2008.1
On November 18, 2011, Plaintiffs filed a Complaint2 alleging that their “no cost”
health benefits were vested, lifetime health benefits that could not be changed after
retirement, and therefore the premiums charged violated the LMRA and ERISA.
Plaintiffs also claim that Defendants breached their fiduciary duty under ERISA by
representing to Plaintiffs, prior to their retirements, that their health benefits would be
provided for life at no cost and by failing to inform them that these benefits could be
1
As of January 1, 2008, a $40 (individual) and $80 (family) per month premium
was imposed upon pre-Medicare-eligible retirees, and a $20 (individual) and $40 (family)
per month premium was imposed upon Medicare-eligible retirees.
2
Plaintiffs originally filed their complaint in the Northern District of Ohio, but the
case was transferred to the Western District of Pennsylvania.
3
changed by agreement with USW.
After dismissals of the Complaint and Amended Complaint with leave to amend,
the District Court granted Defendants’ motion to dismiss the Second Amended
Complaint with prejudice for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6).
This appeal followed.
II.3
A. Breach of Contract
Plaintiffs argue that the CBAs vested them with “no cost” lifetime health benefits
and did not grant Defendants the right to change these benefits. ERISA treats the vesting
of welfare plan benefits4 differently from pension benefits by not requiring welfare plan
benefits for retirees to automatically vest because the costs of such plans can fluctuate
due to, among other things, increased treatment costs. U.A.W. v. Skinner Engine Co.,
188 F.3d 130, 138-39 (3d Cir. 1999); see also Smathers v. Multi-Tool, Inc./Multi-
3
The District Court had jurisdiction pursuant to 28 U.S.C. § 1331. We exercise
jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review of an order
granting a motion to dismiss and apply the same standard as the District Court. See
Santomenno ex rel. John Hancock Trust v. John Hancock Life Ins. Co., 677 F.3d 178,
182 (3d Cir. 2012). When considering a motion to dismiss, we must determine whether
the complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility
when the plaintiff pleads factual content[, which is assumed to be true,] that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id.
4
Welfare plans under ERISA are plans that provide “medical, surgical, or hospital
care or benefits, or benefits in the event of sickness, accident, disability, death or
unemployment . . . .” 29 U.S.C. § 1002(1).
4
Plastics, Inc. Emp. Health & Welfare Plan, 298 F.3d 191, 196 (3d Cir. 2002) (stating that
a “presumption against vesting” exists in cases involving welfare benefit plans). As a
result, ERISA generally allows employers, “for any reason at any time, to adopt, modify,
or terminate welfare plans.” Skinner, 188 F.3d at 138 (internal quotation marks and
citations omitted). An employer’s commitment to vest retiree welfare benefits “is not to
be inferred lightly” and “must be stated in clear and express language.” Id. at 139.
Here, Plaintiffs have not identified any “clear and express language” in the
PHMBs that confers unalterable, vested lifetime health benefits. Id. Indeed, the
“Continuation of Coverage” provision explicitly reserves the right to change the health
benefits for retirees through future agreement. See App. 2151 (“except as the Company
and the Union may agree otherwise”). Plaintiffs attempt to create ambiguity in the
“Continuation of Coverage” provision5 by pointing to the USW representative’s
deposition, Plaintiffs’ own understanding, and references to the lifetime nature of the
benefits elsewhere in Plan documents. These efforts are unavailing because “the words
of the contract clearly manifest the parties’ intent,” and therefore the “[C]ourt need not
resort to extrinsic aids or evidence.” Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d
5
Plaintiffs also argue that the “Continuation of Coverage” provision in United
Steelworks of America v. Cortland Container Corp., 105 B.R. 375, 376 (N.D. Ohio
1989), is “virtually indistinguishable” from the provision here, and urge us to adopt that
court’s conclusion, along with the conclusions of other cases addressing similar language.
Appellant Br. 13-17. Those cases rely on U.A.W. v. Yard-Man, Inc., 716 F.2d 1476 (6th
Cir. 1983), in which the Sixth Circuit held that there is a presumption in favor of vesting
for welfare benefits. We expressly rejected Yard-Man in Skinner. 188 F.3d at 140-41.
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69, 76 (3d Cir. 2011) (internal quotation marks omitted).6 The plain language of the
“Continuation of Coverage” provision makes clear that the USW and Allegheny Ludlum
may agree to change the coverage provided under the PHMBs and, therefore, the
provision is unambiguous. Skinner, 188 F.3d at 142; cf. In re Unisys Corp. Retiree Med.
Benefit ERISA Litig. (Unisys I), 58 F.3d 896, 903-04 (3d Cir. 1995) (holding that an
employer who “used terms such as ‘lifetime’ and ‘for life’ to describe the duration of
retiree medical benefits, while at the same time expressly reserving the company’s right
to terminate the plans under which those benefits were provided, did not render plans
‘internally inconsistent’ and therefore ambiguous”).
Plaintiffs also argue that the “agree otherwise” language in the “Continuation of
Coverage” provision should be read to apply only to then-active employees (i.e., future
retirees) because USW should not be allowed to “sacrifice [r]etiree interests in favor of
active employees who were the dues-paying Union members.” Reply Br. 9 n.4. Nothing
in the CBAs or PHMBs suggests that USW’s authority is restricted to matters impacting
active employees. See Unisys I, 58 F.3d at 905 (rejecting plaintiffs’ contention that
reservation of rights provision applied only to active employees and not to current
retirees).
6
Further, because they are considered “subjective and self-serving extrinsic
evidence,” “the testimonies of union members as to their understanding or belief of the
duration of their retirement benefits cannot as a matter of law create an ambiguity.”
Skinner, 188 F.3d at 146 (internal quotation marks omitted).
6
Plaintiffs’ claim that the “Continuation of Coverage” provision creates an illusory
promise because Allegheny Ludlum “has unfettered freedom, [sic] to modify or terminate
the healthcare benefits,” Appellant Br. 18, also fails. “An illusory promise is one
containing words ‘in promissory form that promise nothing’ and which ‘do not purport to
put any limitation on the freedom of the alleged promisor.’” Flores v. Am. Seafoods Co.,
335 F.3d 904, 912 (9th Cir. 2003) (quoting 2 Corbin on Contracts 142 (rev. ed. 1995)).
Here, the promise was not illusory because it did not allow for modification solely by
Allegheny Ludlum; instead, it allowed for modification only upon the agreement of both
parties. See App. 2151 (“except as the Company and the Union may agree otherwise”).
Thus, Plaintiffs’ argument ignores the fact that USW is a party to the contract that must
agree to any modification. The fact that retirees are impacted by the changes to the
agreement does not make it illusory.
TAP retirees fare no differently. The clear language of the 2004 CBA that
memorialized TAP explicitly states that TAP included “retiree health and life insurance
under the PHMB of the Allegheny Ludlum CBA,” App. 1415, confirming that TAP did
not create a new plan. Thus, the TAP retirees are covered under the same PHMBs as
non-TAP retirees, and are subject to the same “Continuation of Coverage” provision.
The fact that TAP retirees were required to sign a General Waiver and Release
Agreement (“Release Agreement”) to participate in TAP does not change their health
benefits. Even though the Release Agreement contained an integration clause and does
7
not describe retiree health benefits or refer to the PHMBs by name, it specifically
incorporates by reference an “informational packet” that identifies the actual benefits
being provided, including “medical coverage under a Company-sponsored medical plan
for Eligible Retirees and Surviving Spouses,” App. 2466, which is a reference to the
PHMBs.
In sum, Plaintiffs have not identified any “clear and express language” that vests
their health benefits, and therefore their breach of contract claims were appropriately
dismissed.
B. Breach of Fiduciary Duty
Defendants challenge the timeliness of Plaintiffs’ fiduciary duty claim. ERISA
prohibits filing suit for fiduciary duty violations more than six years after “the date of the
last action which constituted a part of the breach or violation,” or more than three years
after the plaintiff had “actual knowledge of the breach or violation,” whichever is earlier.7
29 U.S.C. § 1113; see also Montrose Med. Grp. Participating Sav. Plan v. Bulger, 243
F.3d 773, 787 (3d Cir. 2001).
We have held that “‘actual knowledge of a breach or violation’ requires that a
plaintiff have actual knowledge of all material facts necessary to understand that some
7
In addition to finding that the three year statute of limitations barred Plaintiffs’
claims, the District Court found that at least some Plaintiffs were also barred from
bringing a fiduciary claim under the six year statute of limitations. Because we hold that
all Plaintiffs received “actual knowledge” on January 1, 2008 and thus are barred from
suit by the three year statute of limitations ending January 1, 2011, we need not address
whether the six year statute of limitations applies.
8
claim exists, which facts could include . . . knowledge of a transaction’s harmful
consequences, or even actual harm.” Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d
Cir. 1992) (internal citations omitted). To satisfy this requirement, Defendants must
show Plaintiffs actually knew: (1) about “the events that occurred which constitute the
breach or violation,” and (2) that “those events supported a claim of breach of fiduciary
duty or violation under ERISA.” Int’l Union of Elec. Workers v. Murata Erie N. Am.,
Inc., 980 F.2d 889, 900 (3d Cir. 1992). The second prong can be satisfied by “actual
knowledge of harm or harmful consequences.” Richard B. Roush, Inc. Profit Sharing
Plan v. New Engl. Mut. Life Ins. Co., 311 F.3d 581, 587 (3d Cir. 2002).
Here, Plaintiffs had actual knowledge of the purported breach of fiduciary duty no
later than January 1, 2008, when they began paying increased premiums despite
Allegheny Ludlum’s alleged misrepresentations that they would not have to do so.
Plaintiffs received notice of the event that constituted the alleged breach through the
October 24, 2007 letter that stated that they would owe these premiums. Moreover, the
payment obligations that went into effect on January 1, 2008 were “harm or harmful
consequences” of the type sufficient to satisfy the actual knowledge requirement. See
Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494, 511-12 (3d Cir. 2006) (holding plaintiffs
gained “actual knowledge” when they learned they faced financial penalties in “direct
contradiction” to what they had been told by fiduciary); Kurtz v. Phila. Elec. Co., 96 F.3d
1544, 1551 (3d Cir. 1996) (holding plaintiffs gained “actual knowledge” when they
9
learned of “harmful consequences” of fiduciary’s actions through monetary cost to them).
Thus, because they had knowledge of the harm no later than January 1, 2008, the three
year statute of limitations expired on January 1, 2011. As a result, the fiduciary duty
claim asserted in the November 18, 2011 Complaint is time-barred.
III.
For the foregoing reasons, we will affirm the District Court’s order granting the
motion to dismiss.
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