Adams v. Freedom Forge Corp. ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
3-7-2000
Adams v. Freedom Forge Corp
Precedential or Non-Precedential:
Docket 99-3570
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Filed March 7, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 99-3570
DAVID L. ADAMS; AARON F. ANDREWS; PAUL A.
ARCHIBALD; LYNN E. AURAND; DOROTHY E. BAKER;
CHARLES BANSHIERE; JOHN O. BASHORE; ALBERT L.
BASOM; VAUGHN K. BAUMGARDNER; RONALD L.
BECKWITH; WILLIAM K. BELL, JR.; CHARLES E.
BENDER; JOSEPH G. BERRIER; EDWARD W. BICKEL;
CLARENCE R. BOREMAN, JR.; HARRY BRADLEY, JR.;
JOHN H. CLARK; JOSEPH R. CLOSE; JOHN A.
CLOUSER; CHARLES W. CONDO; H. RAY CONFER;
THOMAS J. CONNARE; DONALD G. COOK; RONALD W.
CRAWFORD; GLEN F. CRISSMAN; GERALD W.
CRISSWELL; CHARLES R. CRUIKSHANK; WILLIAM L.
CUMMINGS; FRANK J. DAVIDHEISER; WILLIAM A.
DAVIS; DAVID S. DOWNING; GERALD G. DUMM;
RICHARD H. EATON; PAUL E. EMMERLING; PHILIP H.
ERB; GERALD ERB; ROY J. FREED; MARVIN E. FULTZ;
CLARENCE GALVIN; RALPH A. GAUL, JR.; FRANK H.
GEISSINGER; JAMES T. GILBERT; HARVEY W. GILBERT,
JR.; ROBERT W. GILLILAND; GENE M. HAGENBERGER;
LARRY L. HARSHBARGER; JAMES L. HARSHBARGER;
CARL L. HARTSOCK; EDWIN E. HEISTER; JOSEPH E.
HELLER; DAVID S. HERST; T. LEWIS HETRICK; WILLIAM
L. HILE; DONALD HORNER; JOHN B. HOSTETLER;
MELVIN H. HUGHES; MRS. BOYD HUNTER; RONALD N.
JOHNSON; JOHN I. JOHNSON; FRANK B. KELLER; JOHN
R. KELLY; DONALD E. KNEPP; DENNIS D. KNEPP; MRS.
FRED KREBS; CHARLES W. LEEPER; GARY M. LEEPER;
EUGENE F. LINGLE; HARRIET MARTHOUSE; MRS.
CLARE MARTIN; LARRY C. MCCOY; LOIS M. MCKEE;
RICHARD D. MCMUNN; JOHN E. METZGER; CHESLEY S.
MIDDLETON; FRED MITCHELL; RICHARD L. MOORE;
HAROLD C. MUMMAH; CLARENCE B. NALE;
JOE F. NORMAN; JAMES L. NORRIS; JOSEPH M.
OLNICK; MRS. PHIL PACINI; MRS. JOHN PACINI; MELVIN
E. PARKER, JR.; HERBERT PECHT; GEORGE W. PITZER;
RICHARD J. QUILTER; JAY A. REAM; DON E. RICHARD;
FRED D. RHINEHELDER; CHARLES RIGHTER;
FERDINANDO ROSS; CALVIN E. ROTHROCK; ROBERT R.
RUNTAGH; JOHN E. SEARER; MRS. EDWARD SHANNON;
WAYNE E. SHEAFFER; RONALD J. SHOEMAKER; PAUL
SIMONETTI; DONALD W. SMITH; ROSS L. SMITH;
DONALD H. SNYDER; JAMES L. SNYDER; GLEN C.
SOLT; WILLIAM M. STEELE; JOHN W. STUCK; DAVID L.
SULOFF; ROBERT SWARTZELL; EDWARD M.
THOMPSON; S. L. TREASTER; IRVIN S. TUBBS; WILBUR
C. ULSH; RONALD I. VANADA; GILBERT H. VARNER;
GARY L. WAGNER; HARRY M. WAGNER; RICHARD S.
WAGNER; WILLIAM L. WAGNER; GENE M. WAGNER;
JAMES E. WILHELM; HENRY F. WILSON; LEE M.
WILSON; HAROLD E. WOLFGANG; ROBERT R. WRAY;
PAUL WRIGHT; DAVID W. WYCOFF; FRANK C. YOCUM,
JR.; HARRY G. NORTON; WILLIAM J. BEERS;
JOSEFA R. LINGLE
v.
FREEDOM FORGE CORPORATION, Appellant
On Appeal From the United States District Court
For the Middle District of Pennsylvania
(D.C. Civ. No. 99-cv-00446)
District Judge: Honorable Yvette Kane
Argued: November 5, 1999
Before: BECKER, Chief Judge, GREENBERG,
and CUDAHY,* Circuit Judges.
(Filed March 7, 2000)
_________________________________________________________________
* Honorable Richard D. Cudahy, United States Circuit Judge for the
Seventh Circuit, sitting by designation.
2
LEO A. KEEVICAN, JR., ESQUIRE
CLARE M. GALLAGHER, ESQUIRE
WALTER G. BLEIL, ESQUIRE
(ARGUED)
ALLAN W. BROWN, ESQUIRE
Doepken, Keevican & Weiss
600 Grant Street
USX Tower, 58th Floor
Pittsburgh, PA 15219
Counsel for Appellant
Freedom Forge Corporation
ALLEN C. WARSHAW, ESQUIRE
(ARGUED)
MARY PATRICIA PATTERSON-
LAVERY, ESQUIRE
ELLIOT D. RAFF, ESQUIRE
JENNIFER L. MURPHY, ESQUIRE
Duane, Morris & Heckscher
305 North Front Street
P.O. Box 1003, 5th Floor
Harrisburg, PA 17108-1003
Counsel for Appellees
OPINION OF THE COURT
BECKER, Chief Judge.
This ERISA appeal arises from an order of the District
Court for the Middle District of Pennsylvania granting a
preliminary injunction to approximately 136 former
employees of Freedom Forge Corporation (and to surviving
spouses of former employees), who are individually named
plaintiffs in a suit seeking to require Freedom Forge to
continue funding the health benefits plan currently in place
for retirees and spouses. The preliminary injunction
requires funding pending trial. The gravamen of the
plaintiffs' claim is that Freedom Forge induced them into
early retirement with oral assurances that their health
insurance benefits would continue essentially unmodified
until death, without informing them that it actually
3
retained the power to amend or eliminate the benefits
program altogether. In doing so, the plaintiffs contend,
Freedom Forge breached its duties as an ERISA fiduciary
by misrepresenting and omitting material facts.
This suit was prompted by Freedom Forge's
announcement that it would be switching from a self-
insured benefits program with no premiums to a managed
care system in which retirees would be able to choose
among plans. Almost all of the choices that would provide
health care comparable to that which they now receive
would require the plaintiffs to pay monthly premiums.
Shortly after filing suit, the plaintiffs moved for a
preliminary injunction, alleging that they would be
irreparably harmed if Freedom Forge changed the plans,
and asserting that they were reasonably likely to succeed
on the merits. After a hearing, the District Court granted
the requested preliminary injunction.
This appeal primarily presents the important question
whether a district court, faced with a large group of
plaintiffs whom the court determines are reasonably likely
to succeed on the merits, may grant a preliminary
injunction to the entire group of plaintiffs if there is
evidence that some, but not all, of the plaintiffs will suffer
irreparable harm. At the preliminary injunction hearing,
only eleven of the approximately 136 plaintiffs testified,
while none of the other plaintiffs presented evidence that
they were threatened with irreparable harm or were
similarly situated to those who testified. We conclude that
the demanding requirements for a preliminary injunction
do not yield to numbers. The vast majority of the plaintiffs
did not present sufficient evidence upon which the court
could find that they faced irreparable harm. Accordingly, we
will vacate the preliminary injunction as to all but three of
the plaintiffs for failure to meet the essential irreparable
harm requirement of a preliminary injunction.
Because we find that three of the plaintiffs have
adequately established that they are threatened with
irreparable harm, we also consider, and affirm (as to two of
them), the District Court's determination that they were
reasonably likely to succeed on the merits. Their claim
appears to fall squarely within the framework established
4
by In re Unisys Corp. Retiree Med. Benefits"ERISA"
Litigation, 57 F.3d 1255 (3d Cir. 1995), which held that it
is a breach of fiduciary duty for an employer to knowingly
make material misleading statements about the stability of
a benefits plan.
I. Facts and Procedural History
A. The Parties and the Proposed Change in the Plan
The plaintiffs are retired employees, and surviving
spouses of employees, of the Burnham, Pennsylvania
facility of Freedom Forge Corporation's Standard Steel
Division. Since 1975, Freedom Forge has provided health
benefits to retirees and their spouses through a self-insured
plan--the Freedom Forge Corporation Welfare Benefit Plan
for Salaried Employees and Retirees of the Standard Steel
Division (the "Plan"). The Plan, administered by
Metropolitan Life Insurance Company until 1988, is now
administered by a third-party administrator, Blue Cross
and Blue Shield. It is a self-insured plan, as Freedom Forge
pays for the cost of retiree health coverage, and pays the
administrator to process claims. Although the Plan
beneficiaries are responsible for paying a yearly deductible
and copayments if necessary, they do not have to pay
premiums.
Early in 1999, Freedom Forge announced that it intended
to switch from the Plan to a system of coverage through
managed care programs. Under the proposal, retirees under
age 65 would be switched to Keystone Health Plan Central
coverage, and would be required to pay a portion of their
premiums, ranging from $30 to $90. Those older than 65
would be able to choose between two different plans: (1) a
plan with no premium payments required, but a $10 co-
payment per prescription and limited annual benefits of
drug prescriptions ($1250); and (2) a plan with $20 to $40
monthly premiums, $10 to $20 co-payment per 30-day
supply of prescription drugs, and drug benefits limited to
$2500 a year. The retirees immediately protested.
Approximately 130 retirees and spouses thereupon joined
in this ERISA-based suit. They allege that Freedom Forge
5
owed them a duty, as their fiduciary, not to mislead them
about their benefits under the Plan; that Freedom Forge
breached that duty by misleading them into thinking they
would never have to pay premiums; and that this breach
harmed them by inducing them to retire early and
otherwise rely on the assurances.
The plaintiffs moved for a preliminary injunction to
require Freedom Forge to maintain the preexisting plan
pending suit.1 At the hearing, two Freedom Forge
administrators (Robert Robinson, Manager of Compensation
and Benefits since 1979, and Thomas McGuigan, Vice
President of Human Resources and Administration)
testified, and the plaintiffs introduced deposition testimony
of Gerald Sieber, who had been in charge of pension
administration at the Burnham facility from 1978 to 1993.
Eleven of the plaintiffs also testified. Plaintiffs' counsel
explained: "We're not going to call 130 witnesses. We are
going to, because of the time limitations, call what we
believe is a representative sample of the plaintiffs."
However, he adduced no evidence that the eleven witnesses
were representative of the other retirees and surviving
spouses.
The evidence presented at the preliminary injunction
hearing established that in 1982 and 1991, Freedom Forge
developed "voluntary job elimination programs" ("VJEPs") to
encourage voluntary retirement.2 The controversy centers
around the terms and tenor of the formal and informal
communications made to potential retirees about these
programs.
_________________________________________________________________
1. The plaintiffs also moved for class certification, and the court
requested briefing on the issue. The defendants objected. As of the date
of the appeal, no class certification determination had been made.
2. There is some dispute about the motive for instituting the VJEPs.
Freedom Forge claims that the VJEPs were attempts to help potential
retirees because they allowed them to retire with benefits, instead of
firing them outright, which Freedom Forge retained the right to do. The
plaintiffs contend that Freedom Forge intended to eliminate the older
workers and could not otherwise do so without incurring potential
liability for age discrimination. The motive, whatever it may have been,
does not affect our analysis of the parties' rights and duties.
6
B. The Representations to the Plaintiffs
1. Oral Communications
To introduce the VJEPS, Freedom Forge held meetings
describing the programs and their benefits. Gerald Sieber
testified via deposition that it was his job to meet with
prospective retirees and brief them on the retirement
benefits to which they were entitled. Sieber, along with
other members of the benefits administration team, also
met informally with potential retirees and answered their
questions. Sieber testified that he knew that health
insurance was very important to people considering
retirement, that it was "always discussed" and that "I would
get a lot of questions on it. I think it was a very major
factor, especially if one was approaching early retirement, it
was a major factor in determining whether they were going
to take early retirement or not."
Sieber testified that he told employees that they (and
their surviving spouses) would be insured for their
lifetimes. He acknowledged that he told people that the
benefits would be free of monthly charge. Although he later
testified that he did not use those words ("free of any
monthly charge"), he explained:
I would normally say, your program of health
insurance benefits continues as it is, with the
exception of dental coverage . . . and the fact that the
retiree program contained some different allowances for
certain parts of the program . . . I think all the retirees
knew that--potential retirees knew that since they did
not pay any monthly insurance premiums as active
employees, they were not expected to pay any
premiums as retirees.
Sieber acknowledged that he never told employees that
their plans would or could change. He provided potential
retirees with booklets, including those listed infra, which he
called summary plan descriptions ("SPDs") (this is an
ERISA term of art, referring to the document required by
ERISA to inform beneficiaries about their rights under a
plan, see 29 U.S.C. S 1022). These booklets outlined the
structure of the retirement benefits plans and included no
7
explicit reservation of rights. Sieber testified that he
thought that the summary plan descriptions for salaried
employees did not apply to retirees.
Robert Robinson testified that he believed that the
company always had the right to change or terminate the
programs in which the retirees were enrolled, but that he
never told any retirees or potential retirees of that right
during the relevant time period. He stated that he did not
inform them of the termination right because the intention
was to provide coverage for the rest of the beneficiaries'
lives.
The testifying retirees gave slightly different accounts of
the content of Sieber's (and others') assurances, but they
uniformly claimed that they were left with the impression
that they would have lifelong insurance at the company's
expense. For example, Stanley Treaster testified that he and
his wife were told by Sieber that they would get full health
benefits from the company until he turned 65, and that the
company would then pay for a supplement so that, along
with medicare benefits, they would be fully covered.
Treaster represented that he was never told that he would
have to pay premiums. Many of the plaintiffs testified that
they relied on these assurances in making their decision to
retire. For example, Albert Basom related that he took early
retirement in 1982 after a "man-to-man meeting with Jerry
Sieber in his office." He testified that Sieber told him that
he would have no-cost health coverage for life, for himself
and his wife. He also said that he "definitely" was
influenced by the promised health benefits, and that he
would not have been able to retire without them.
2. Written Communications
As part of the VJEP project, Freedom Forge sent out
letters in 1982 announcing the plans that stated that early
retirees would have
continuation of full Hospitalization, Surgical and Major
Medical coverage under the ``Program of Hospital and
Physicians' Services and Major Medical Expense
Benefits' for retirees to age 65. Thereafter, you and
8
your spouse are covered by the ``Program of Hospital
and Medical Benefits Supplementing Medicare.'
There was no explicit reference, in either this letter or the
programs referenced therein, to the fact that the company
retained the right to amend or cancel the programs. The
company sent out similar letters in 1991.3
Freedom Forge also issued two distinct kinds of
documents detailing plan benefits. First, in 1981, 1986,
and 1993, it distributed a booklet, which conformed with
the ERISA SPD requirements, entitled "Program of
Insurance Benefits for Eligible Salaried Employees" to all
employees and retirees.4 Each booklet included a clear
disclaimer informing all beneficiaries that Freedom Forge
retained the right to amend or eliminate the Plan without
the consent of the beneficiaries.5 These booklets each
include a section discussing the medical coverage for
"Pensioners, Employees Receiving Long Term Disability
Benefits and Surviving Spouses" stating that pensioners
(and the other named individuals) would be enrolled in the
"Company Paid Program" or the "Program Supplementing
Medicare." Additionally, Freedom Forge issued booklets
describing health benefit programs for retirees and their
spouses with titles that, according to the retirees, suggested
_________________________________________________________________
3. These letters promised continued coverage under the "Program of
Health Care" and the "Program of Hospital and Medical Benefits
Supplementing Medicare." It is unclear to what these programs refer, but
at all events there was no indication in this letter that Freedom Forge
retained the right to amend or cancel the benefit plans.
4. There was no evidence that any of the plaintiffs either had or had not
read them.
5. This reservation accords with the actual terms of the Plan. According
to Article 7 of the Plan, Freedom Forge
reserves the right at any time and from time to time. . . to amend,
suspend, or terminate the Plan or any Component Plan for any
reason, in whole or in part, and to adopt any amendment or
modification thereto, all without the consent of any Employee or
other person. However, the Company shall not have the right to
amend or terminate this Plan or any Component Plan or any Benefit
with respect to Benefit claims already incurred at the time of
amendment, suspension, or termination.
9
they were self-contained programs, and specifically
intended for pensioners.6 Unlike the other booklets, these
did not include explicit language reserving the company's
right to unilaterally amend or eliminate the benefits.7
The plaintiffs assert that they believed that they were not
"salaried employees" and therefore not controlled by the
1981, 1986, and 1993 booklets. Each booklet was self-titled
a "Program of Insurance Benefits for Eligible Salaried
Employees" (emphasis added). Instead, they relied solely on
statements of company representatives, the letters
describing the VJEPS, and those booklets directed at
retirees for information about their benefit programs. Since
none of the pensioner-directed booklets prior to 1994 stated
that Freedom Forge retained the right to amend the Plan,
and the plaintiffs claim to have been orally assured that
they would be covered in the same way for life, they
represent that they thought that the company could not
unilaterally change or amend their benefits. Plaintiff Ross
Smith, for example, testified that he understood that the
special booklets about benefits for pensioners replaced
those for active salaried employees. When asked whether
there was a distinction conveyed to him between active and
pensioned employee benefit programs, he answered,"Oh
yes. There always was. That's why there are separate
booklets for the different categories of pensioners." He
remembered that the benefits administrators "specifically
went over these things [the benefits] because they were
kind of unbelievable to us, that they would make this offer."
_________________________________________________________________
6. These booklets included the: "Program of . . . Benefits, Salaried
Pensioners & Surviving Spouses Eligible for Medicare" (1988); "Program
of . . . Benefits, Pensioners and Surviving Spouses--Retired Prior to
December 31, 1986, Not Eligible for Medicare" (1988); and the
"Comprehensive Major Medical Plan, Standard Steel Pensioners and
Surviving Spouses--Retired After December 31, 1986" (1988).
7. Two 1988 programs for "Salaried Pensioners & Surviving Spouses" do
include provisions about continuation after termination with the caveat,
"[t]his continuation provision does not apply if Standard Steel - Division
of Titanium Metals Corporation of America replaces this Program with
another program. In this event, all benefits will cease on the date this
Program is terminated." There is no description of how, or under what
circumstances, a "replacement" or "termination" would take place.
10
In 1994, Freedom Forge published booklets that were
clearly applicable to retirees that contained the reservation
of rights language. However, all of the testifying plaintiffs
(except Snyder) had retired by that time.
C. Testimony Concerning Irreparable Harm
Some of the eleven plaintiffs at the preliminary injunction
hearing also testified about ways in which they would be
irreparably harmed absent an injunction. Albert Basom
testified that he takes medication for Paget's disease, a
bone disease affecting his right leg. He stated that he
currently pays $5 every three months for prescription drugs
that would otherwise cost $1072. Basom testified that if he
chose the no-premium option, he would have to pay more
than $1000 dollars extra every three months. He testified
that he would be unable to afford the medication under the
circumstances and would have to stop taking it. The
resulting brittleness in his bones could lead to a broken leg,
confining him to a wheelchair.8
Stanley Treaster testified that he retired early in 1991 as
part of an incentive package. He said the proposed plan
"would really kill me, really, that way, because I couldn't
afford it . . . I'm on nine medications, three inhalers, and
insulin." He stated that he is on an $804 per month
pension, and currently pays $5 for three months'
medication; the new program, he testified, would destroy
his budget and make it impossible for him to take
medication, including the insulin he takes twice a day.
Donald Snyder testified that he receives a $1098 per
month pension. He has had five back operations, electrodes
in his spine, blood pressure problems, stomach problems,
and needs extensive medication. He estimated that if the
new plan were put in place, his medication costs would
_________________________________________________________________
8. If he took another option, he would have to pay less in prescription
costs (probably around $1500), but an additional $20 premium every
month, resulting in a total of about $1740 a year, as opposed to $20 a
year. Although the mathematical estimates appear inaccurate, the
District Court apparently credited the underlying claim that his
prescription would cost $1072 every three months.
11
skyrocket from $5 every three months to $400 a month
after the first quarter, i.e., for nine months out of the year.
Of the other eight plaintiffs at the preliminary injunction
hearing, a few testified that they were concerned about
having to switch some or all of their doctors under the new
plan. Joe Norman testified that he was very concerned
about the cost effects of the new program, as well as the
prospect of switching from an ophthalmologist who had
treated him since the 1970s. Ronald Beckwith testified that
his wife would have to switch her gynecologist, urologist,
and orthopedist. He predicted the cost difference would be
significant for him, and stated that he was on afixed
income. Charles Cruikshank, who has a heart condition,
testified that the new program would affect him because it
would require him to switch his primary care physician and
his cardiologist and to drive farther for his bi-annual
checkup.
Others testified primarily about the financial burden.
Robert Swartzell testified that he and his wife would have
to pay significantly more for prescription drugs. Marjorie
Krebs testified that she was concerned about the effect of
the higher costs, especially for medication, and that she
was concerned because there was a history of breast cancer
in her family. Ross Smith testified that "my wife and I have
been very fortunate physically, but none of us know what
tomorrow will bring." He testified that he was on a fixed
income, and he was worried that the premiums might
increase, but he did not testify that he would be unable to
pay them. David Suloff said that he was worried about
rising premiums and changing Medicare and Social
Security policies in the future. He noted that he was not on
a fixed income at the time, but he was sure he would be in
the future. Joseph Heller testified about the assurances
given him, but adverted to no threatened harm.
A preliminary injunction was entered for the plaintiffs,
collectively, on June 30, 1999. Freedom Forge timely
appealed. We have appellate jurisdiction under 28 U.S.C.
S 1292(a)(1).
II. Irreparable Harm
In order to obtain a preliminary injunction, plaintiffs
must show both (1) that they are likely to experience
12
irreparable harm without an injunction and (2) that they
are reasonably likely to succeed on the merits. A court may
not grant this kind of injunctive relief without satisfying
these requirements, regardless of what the equities seem to
require. See AT&T v. Winback & Conserve Program, Inc., 42
F.3d 1421, 1427 (3d Cir. 1994); Acierno v. New Castle Cty.,
40 F.3d 645, 653 (3d Cir. 1994); In re Arthur Treacher's
Franchisee Litig., 689 F.2d 1137, 1143 (3d Cir. 1982). If
relevant, the court should also examine the likelihood of
irreparable harm to the nonmoving party and whether the
injunction serves the public interest. See AT&T v. Winback,
42 F.3d at 1427. A preliminary injunction is reviewed for
abuse of discretion. Questions of law are reviewed de novo,
while questions of fact are reviewed for clear error. Frank
Russell Co. v. Wellington Mgmt. Co., 154 F.3d 97, 101 (3d
Cir. 1998).
A. General Standards
The irreparable harm requirement is met if a plaintiff
demonstrates a significant risk that he or she will
experience harm that cannot adequately be compensated
after the fact by monetary damages. See Frank's GMC Truck
Center, Inc. v. General Motors Corp., 847 F.2d 100, 102-03
(3d Cir. 1988). This is not an easy burden. See, e.g., Morton
v. Beyer, 822 F.2d 364, 371-72 (3d Cir. 1987). In Morton,
the plaintiff was suing for unlawful discharge, and claimed
that he would be irreparably harmed unless he were to be
employed pending suit, because his wages were his sole
source of income. We acknowledged that Morton was likely
to succeed on the merits. However, notwithstanding the
plaintive (and understandable) problems that Morton faced,9
_________________________________________________________________
9. Morton explained the problems of going without a wage:
Well, I have myself, I have two sons, my older son is in, goes down
to the University of Virginia. I have car payment, mortgage,
insurance, you know, everything that most people have, in the
course of a day. I have charges at Bamberger's and Penney's,
different stores.
I have a loan, two loans, I have one at the Capitol Bank, one with
the Chase Manhattan for my son. I guess in the everyday, you
know, the everyday expenses that everybody has, food, utilities.
822 F.2d at 371-72.
13
we reversed the district court's injunction order because
"[a]lthough we are not insensitive to thefinancial distress
suffered by employees whose wages have been terminated,
we do not believe that loss of income alone constitutes
irreparable harm." Id. at 372. The nature of the remedy was
"purely economic in nature and thus compensable in
money." Id. Recognizing that the request for money alone
itself does not foreclose a claim of irreparable injury, see
id., we concluded that there must be something uniquely
threatening about the particular loss of money. In Morton,
we were guided by the Supreme Court's explanation that
an insufficiency of savings or difficulties in immediately
obtaining other employment--external factors common
to most discharged employees and not attributable to
any unusual actions relating to the discharge itself--
will not support a finding of irreparable injury, however
severely they may affect a particular individual.
Sampson v. Murray, 415 U.S. 61, 92 n.68 (1974) (emphasis
added).
B. The District Court's Approach
The District Court was satisfied that the plaintiffs had
connected the monetary harm to a specific harm that could
not be remedied after the fact. It noted that "several" of the
plaintiffs
testified that their incomes were so limited that the
higher copayments and premiums of the proposed
plans would require them to forego essential medical
care. This testimony established immediate and
irreparable harm. . . . Plaintiffs--many of whom live on
fixed incomes and would face a Hobson's choice
between paying for basic necessities or needed, costly
medications--have established that they would suffer
like harm if the proposed modifications were to take
effect.
We agree that if all the plaintiffs had presented evidence
that they would have to forego medical care because of the
heightened costs of the new health plan, each would have
established irreparable harm. The difficulty with the
14
District Court's conclusion, however, is that only a small
percentage of the plaintiffs testified, and that even among
those who did, many did not present any evidence (or even
make an assertion) that they would have to forego medical
care or other necessities if the proposed change were to
take effect. There was thus no basis for inference-drawing.
Instead of making a case-by-case determination that each
plaintiff demonstrated irreparable harm, or pointing to
evidence that strongly indicated that all similarly situated
Freedom Forge retirees necessarily risk some form of
irreparable harm, the court dealt with the plaintiffs as a
unit and concluded that because several of them probably
risked irreparable harm, that was sufficient to satisfy that
prong of the preliminary injunction test.10
In making this determination, and in the absence of clear
Third Circuit precedent, the District Court understandably
relied on several retiree health insurance cases from other
courts that have required little or no showing of
particularized risk of irreparable harm. For example, it cited
the Court of Appeals for the First Circuit which had"no
difficulty" finding that a preliminary injunction was
appropriate in a case similar to this one, in which retirees
disputed their former employer's power to cease paying
their insurance premiums. United Steelworkers of America,
AFL-CIO v. Textron, Inc., 836 F.2d 6, 8 (1st Cir. 1987). That
court took note of the "generally believed facts" that:
(1) most retired union members are not rich, (2) most
live on fixed incomes, (3) many will get sick and need
_________________________________________________________________
10. In a supplemental letter to this court, the plaintiffs objected that
"Freedom Forge . . . did not raise in the court below the issues of
whether plaintiffs should be required to produce individualized proof of
irreparable harm. Nor did it raise the related question of the extent to
which the testimony given could be generalized to all of the plaintiffs."
See also United States v. Anthony Dell'Aquilla, Enters. and Subsidiaries,
150 F.3d 329, 335 (3d Cir. 1998) ("[A]bsent exceptional circumstances,
an issue not raised in district court will not be heard on appeal."). We
reach the issue, however, because the burden is clearly on the moving
party to prove all elements required for a preliminary injunction, see
Acierno v. New Castle Cty., 40 F.3d 645, 653 (3d Cir. 1994), and because
it is important to clarify the authorities, which may be in disarray, on
this significant aspect of preliminary injunctions.
15
medical care, (4) medical care is expensive, (5) medical
insurance is, therefore, a necessity, and (6) some
retired workers may find it difficult to obtain medical
insurance on their own while others can pay for it only
out of money that they need for other necessities of life.
Id. The court eschewed invocation of the doctrine of judicial
notice, which could not by its terms apply, see Fed. R.
Evid. 201, and grounded its injunction-affirming holding in
a single conclusory affidavit of an AFL-CIO president and
"[c]ommon sense," which "suggests that generally believed
facts (or something like them) are true." Id.Other courts have achieved essentially the same result by
allowing the judge to treat plaintiffs--and the risks
attending them--in an aggregate way, and to rely on
generally believed facts not in evidence. In Shalk v.
Teledyne, Inc., 751 F.Supp. 1261 (W.D. Mich. 1990), aff 'd,
948 F.2d 1290 (6th Cir. 1991), for example, the court
granted a preliminary injunction requiring the company to
pay insurance premiums pending suit in part because"the
uncertainty posed by the lack of knowing just how much
money will be needed to cover medical expenses . . . poses
irreparable harm in the financial planning burden which it
places on plaintiffs," id. at 1268, and"[i]t is self-evident, to
the Court at least, that a cost shift to retirees of what
defendants themselves claim will be approximately $90,000
per month [total], constitutes irreparable harm," id. at
1267. This reasoning is congruent with Textron , supra, and
that of several other courts, as described in the margin.11
_________________________________________________________________
11. See, e.g., Golden v. Kelsey Hayes Co., 845 F.Supp. 410 (E.D. Mich.
1994) (granting preliminary injunction requiring defendant to continue
previous insurance plan and citing Textron approvingly where numerous
retirees, though not retirees from every affected division of a company,
presented the court with affidavits detailing the hardship they would
undergo without a preliminary injunction), aff 'd, 73 F.3d 648 (6th Cir.
1996); Mowbray v. Kozlowski, 725 F.Supp. 888 (W.D. Va. 1989) ("The
class includes approximately some 9,000 members. If a stay is granted,
some number of these will be faced with the difficult decision of either
forgoing needed medical attention, forgoing other expenditures, or
disposing of enough of their property to come within the guidelines as to
assistance, which guidelines are the very substance of this action.
Failure to obtain needed medical care could result in the death of some
16
While these cases have a certain intuitive appeal, they do
not withstand rigorous scrutiny. The law does not take
judicial notice of matters of "common sense," and common
sense is no substitute for evidence. A preliminary
injunction may not be based on facts not presented at a
hearing, or not presented through affidavits, deposition
testimony, or other documents, about the particular
situations of the moving parties. The elasticity that the
opposite conclusion would permit would essentially shift
the burden to the defendant to disprove widely believed
facts and would turn the preliminary injunction balancing
process on its head.
In lieu of (or in addition to) "common sense," many of
these cases pursue an additional approach, resting a
preliminary injunction for many on the testimony of a few.
This is not inappropriate so long as the plaintiffs lay an
adequate foundation from which one could draw inferences
that the testifying plaintiffs are similarly situated--in terms
of irreparable harm--to all the other plaintiffs. When a
court, such as the District Court, concludes that there is
clear evidence that most, but not all, individuals will be
harmed, it treats each individual only as part of an
aggregate; in contrast, when a court infers a risk of harm
_________________________________________________________________
class members. Surely this is substantial, if not irreparable harm."
(emphasis added); Shultz v. Teledyne, Inc., 657 F.Supp. 289, 293 (W.D.
Pa. 1987) ("We have had testimony in this case indicating that retirees
on fixed incomes will suffer financial hardship and in some cases will be
unable to pay for individual health insurance coverage. Some individuals
indicated that they would forego medical care for themselves and their
families due to their inability to pay for either the insurance coverage
or
the direct cost of medical care. We believe that plaintiffs in this case
have established that they will suffer a risk of irreparable harm.")
(emphasis added); Mamula v. Satrolloy, 578 F.Supp. 563, 577 (S.D. Ohio
1983) ("The adequacy of a monetary award to a person unable to afford
health insurance coverage rests on the assumption that the person will
seek and obtain necessary medical care, will pay for the medical care
received at that time, and will simply be recompensed later by the
defendant when a judgment is rendered against it. Such an assumption
could have some validity if the costs of medical services and
hospitalization in today's society were well within the financial reach of
the average worker.").
17
to all individuals although only a few testify, it is reasoning
inductively. The former mode of analysis is unacceptable;
the latter is the daily work of fact-finders. In short, in the
absence of a foundation from which one could infer that all
(or virtually all) members of a group are irreparably
harmed, we do not believe that a court can enter a mass
preliminary injunction.
An important factor animating our holding is our respect
for the extraordinary nature of the preliminary injunction
power. We have repeatedly insisted that the use of judicial
power to arrange relationships prior to a full determination
on the merits is a weighty matter, and the preliminary
injunction device should not be exercised unless the
moving party shows that it specifically and personally risks
irreparable harm. See, e.g., Campbell Soup Co. v. ConAgra
Inc., 977 F.2d 86, 91 (3d Cir. 1992); Frank's GMC Truck
Center, 847 F.2d at 102-03. The Supreme Court, moreover,
has instructed that the tool of the preliminary injunction
should be reserved for "extraordinary" situations. Sampson,
415 U.S. at 88, 92. And as we have previously stated, "[t]he
dramatic and drastic power of injunctive force may be
unleashed only against conditions generating a presently
existing actual threat." Holiday Inns of America, Inc. v. B &
B Corp., 409 F.2d 614, 618 (3d Cir. 1969) (emphasis added).12
In this vein, we have also insisted that the risk of
irreparable harm must not be speculative. See, e.g., Acierno
v. New Castle Cty., 40 F.3d 645 (3d Cir. 1994). 13 For many
_________________________________________________________________
12. See also, e.g., Wyrough & Loser, Inc. v. Pelmor Labs., Inc., 376 F.2d
543, 547 (3d Cir. 1967) ("[T]he black letter rule" is that "an injunction
is
an extraordinary remedy to be granted pendente lite only upon a
showing of the likelihood of irreparable harm before the case is resolved
on the merits."); Warner Bros. Pictures v. Gittone, 110 F.2d 292 (3d Cir.
1940) ("We have pointed out frequently that the granting of a preliminary
injunction is an exercise of a very far-reaching power, never to be
indulged in except in a case clearly demanding it.").
13. Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797 (3d
Cir.
1989) (district court abused its discretion in granting a preliminary
injunction when there was no hard evidence that could have led the
court to believe that a broken contract would force one party to go out
of business); Marxe v. Jackson, 833 F.2d 1121 (3d Cir. 1987) (district
18
if not most of the plaintiffs in this case, the risk of
irreparable harm seems speculative given the evidence
presented to the District Court. The plaintiffs rely on the
common sense approach of Textron to reason that most of
these retirees probably cannot afford the premiums. This
speculation cannot support an injunction--especially given
the evidence of the relatively low premiums in the proposed
plans.
Moreover, the plaintiffs all but concede that not all of
them are threatened with irreparable harm. At the hearing,
for example, counsel for the plaintiffs stated that"most,"
not all, of the plaintiffs retired under early retirement plans.
He stated that Sieber met with "most" plaintiffs to discuss
"most" claim programs and that "most of these people are
on fixed income." The assertions of counsel were borne out
by the testimony; some, but not all, plaintiffs testified that
they were on fixed incomes. A few, but not most, testified
that they would be forced to forego medical care. The
District Court itself used qualified language in its decision
("many" of the plaintiffs live onfixed incomes; "several" of
the testifying plaintiffs stated that their incomes were
limited) (emphasis added).
Based on this record, we conclude there was insufficient
evidence from which the District Court could infer that all
the plaintiff-retirees and their spouses (in whose favor the
injunction ran) were in such financial straits that they
would be forced to choose between medical care and other
necessities. In order to obtain a preliminary injunction that
would apply to each one of them, the plaintiffs would have
_________________________________________________________________
court erred in finding irreparable harm when there was weakly alleged
possibility that, in claim of retaliatory discharge, being kept out of the
workplace threatened to discourage coworkers from testifying; such a
charge could constitute irreparable harm, but more specific facts
indicating the existence of such a threat needed to be presented); United
States v. Com. of Pennsylvania, 533 F.2d 107 (3d Cir. 1976) (threatened
effect on ability to provide medical care too attenuated to constitute
irreparable harm); A.L.K. Corp. v. Columbia Pictures Indus., Inc., 440
F.2d
761 (3d Cir. 1971) (threatened loss of "theatre momentum" not
sufficiently concrete to require Columbia Pictures to deliver promised
film before adjudication of meaning of contract).
19
had to present affidavits or other evidence from which one
could at least infer that each of them was so threatened.
Instead, the plaintiffs only presented evidence from which a
court could infer that some of them were threatened with
harm. In holding that this is insufficient to support a
preliminary injunction, we recognize that such orders are
sought when an emergency threatens, and that the moving
party may not be able to marshal extensive evidence. That
does not mean, however, that proof by association in a law
suit, or proof by "common sense," will suffice.14
The plaintiffs have identified one case in which we appear
to have granted a preliminary injunction for a large group
of plaintiffs without requiring evidence that the parties were
similarly threatened, but we are not persuaded by the
citation. In United Steelworkers of America v. Fort Pitt Steel
Casting, 598 F.2d 1273 (3d Cir. 1979), we upheld a
preliminary injunction that required an employer to pay
insurance premiums during a strike. We stated:
If the risk of "water pipes freezing" can constitute
irreparable injury, See Celotex Corp. v. Oil Workers,
516 F.2d 242, 247 (3d Cir. 1975), then surely the
possibility that a worker would be denied adequate
medical care as a result of having no insurance would
constitute "substantial and irreparable injury." Id.Moreover, the risk of irreparable injury was not
appreciably lessened merely because the employees
allegedly would remain covered for 30 days after
premium payments were terminated and because the
employees thereafter would have the option to convert
to individual policies. There was no assurance at the
time the injunction was issued that the strike would
end within 30 days; thus there was a significant risk
that absent an injunction, the employees would be
without insurance coverage. In addition, the likelihood
that all of the employees could have exercised their
right to obtain individual policies was problematic,
because while the employees were on strike, they were
not collecting their wages.
_________________________________________________________________
14. In situations where the proof would be redundant and waste
everyone's resources, the nonmoving party could, of course, choose to
stipulate to irreparable harm.
20
Id. at 1280.
Although we appeared to treat the plaintiffs as a
collective, it seems that in that case--where the employees
risked losing not only all their insurance but also their jobs
--the court had sufficient evidence from which to infer that
such loss constituted a risk of irreparable harm for all, or
practically all, the employees. In contrast, we know the
evidence upon which the District Court relied here, and we
find it wanting. At all events, the Fort Pitt panel did not
confront the issue we discuss today.
We do not think that the precept that multiple plaintiffs
must adduce evidence from which it might be inferred that
each of them is threatened with harm will be a serious
hurdle to plaintiffs. Simple affidavits should typically
suffice. Moreover, in many instances, the defendant will be
incapable of severing its conduct towards one plaintiff from
that towards another. In an injunction forbidding a town to
build a wall, for example, the wall applies equally to all who
are harmed by it, and only one plaintiff need demonstrate
likelihood of success and irreparable harm in order to
forestall construction. Likewise, if numerous riparian
landowners bring suit asking for an injunction against a
company dumping toxic substances into a lake, it does not
matter that only one or two plaintiffs can show irreparable
harm, for the court cannot possibly divine which toxics
invaded which plaintiff 's waterfront. As Heraclitus noted in
ancient days, one "could not step twice into the same
rivers; for other waters are ever flowing on to you." Quoted
in J. Bartlett, Familiar Quotations 62:14 (Justin Kaplan
ed., 16th ed. 1992). In the case at bar, in contrast, Freedom
Forge's counsel stated at oral argument that the company
may continue the old plan for some pensioners while
shifting the others to the proposed plan.15
_________________________________________________________________
15. It goes without saying that we lay out only a general framework, fully
aware that there may be unanticipated circumstances in which a
particular (direct or inferential) demonstration of harm by each plaintiff
will be unworkable.
21
C. Switching Doctors as Irreparable Harm
Plaintiffs urge a separate basis for finding irreparable
harm. They point to the testimony of several plaintiffs who
stated that they would have to switch health care providers,
which they view, at least potentially, as an emotionally and
medically risky move. They argue that this harmflows from
the alleged fiduciary breach, and that a preliminary
injunction is necessary to prevent it. Although they do not
aver that any company executive ever promised anyone that
they would never have to switch doctors, the plaintiffs
contend that such a promise inhered in the general
assurance that the overarching health plan structure would
not change.
There are two problems with this argument. First, the
gravamen of the complaint is that the plaintiffs were
promised that their insurance would be maintained, not
that they would never have to switch physicians. Their
harm is therefore insufficiently related to the complaint and
does not deserve the benefits of protective measures that a
preliminary injunction affords. Cf. John Leubsdorf, The
Standard for Preliminary Injunctions, 91 Harv. L. Rev. 525,
541 (1978) ("Not even all irreparable harm, but only
irreparable harm to legal rights, should count.").
Second, the hassle of switching doctors, although
emotionally draining, is not the kind of "irreparable harm"
contemplated by the preliminary injunction standard. In
the rapidly changing world of health care, numerous plans
have switched to managed care, requiring employees and
other plan beneficiaries to change doctors. We are not
prepared to hold, in the absence of a highly particularized
and compelling demonstration of hardship, that irreparable
harm flows from such a plan change simpliciter . There are
many rearrangements--not just scrimping and saving
rearrangements--that individuals involved in a legal battle
must endure pending the conclusion of a suit, and very few
will be without some anguish. As we have stated,
"injunctions will not be issued merely to allay the fears and
apprehensions or to soothe the anxieties of the parties."
Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92 (3d
Cir. 1992) (quoting Continental Group, Inc. v. Amoco
Chemicals Corp., 614 F.2d 351, 359 (3d Cir. 1980)).
22
Because the plaintiffs have presented no evidence that
the doctors available to them under the new plan are in any
way inadequate, or that the mere transfer from one
physician to another is medically risky for any individual
plaintiff, we will not hold that a preliminary injunction is
appropriate based on the change-of-physician argument.
Moreover, if we were to recognize this argument for some
plaintiffs, a fortiori this approach could not be generalized
to all the plaintiffs.
D. Class Certification Issues
The plaintiffs further contend that since they have sought
class certification, see supra note 1, they should be treated
as a class pending the court's determination on that issue.
Some courts have uncritically treated a group as a
collective when a would-be class has petitioned for
certification. See, e.g., Hinckley v. Kelsey-Hayes Co., 866
F.Supp. 1034 (E.D. Mich. 1994). In Hinckley, the court
found irreparable harm to the 500 plaintiffs when only one
of the two named plaintiffs in the proposed class presented
evidence of threatened harm, and none demonstrated that
money would not be an effective compensation. See id. at
1044-45. The court based its order, in part, on the fact that
it was dealing with a potential class. "[T]he court will take
into consideration the irreparable harm faced by putative
class members before class certification because of the
nature of injunctive relief at this stage of the litigation." Id.Likewise, in Lapeer Cty. Medical Care Facility v. Michigan,
765 F.Supp. 1291, 1301 (W.D. Mich. 1991), the court
treated a group of noncertified plaintiffs as a class. The
court analogized the preliminary injunction order to
dismissal orders and compromise negotiations, in which a
court can treat a non-certified potential class as a unit. Cf.
Musto v. American General Corp., 615 F.Supp. 1483, 1504-
05 (M.D. Tenn. 1985), rev'd on other grounds, 861 F.2d 897(6th Cir. 1988) (treating certified class collectively for
irreparable harm determination).
We disagree. We see no reason why the pendency of a
class action certification petition should alter our analysis.
We have no basis on which to judge the viability of the
class certification request, which we understand to be
23
contested. Merely petitioning for class certification cannot
provide plaintiffs the right to be treated collectively.
Furthermore, a class action determination focuses on
similarities between the legal claims of the parties, see
Fed. R. Civ. P. 23(a), while a preliminary injunction
determination, by requiring a showing of irreparable harm,
depends in many cases (including this one) on
circumstances entirely independent of legal rights: the
particular resources available to each member of the class
to weather hardships pending a trial.
E. Irreparable Harm - Conclusion
In view of the foregoing discussion, it is necessary that
we vacate the preliminary injunction as to all of the
nontestifying plaintiffs. There is simply insufficient evidence
of irreparable harm as to those plaintiffs. This conclusion
does not mean, however, that we must uphold the
preliminary injunction for all the testifying plaintiffs.
Rather, only three of the testifying plaintiffs met the high
preliminary injunction standard. Basom and Treaster
effectively demonstrated that they would not be able to
afford the medicine they need if the new plan is put into
effect pending trial. Snyder is a close case, but we will defer
to the District Court's discretion in this matter, and its
decision that he risked irreparable harm. Therefore if
Basom, Treaster, and Snyder meet the "likelihood of
success on the merits" requirement, we will uphold the
preliminary injunction as applied to them.16 However,
_________________________________________________________________
16. In opposition to the grant of a preliminary injunction for any
plaintiff,
Freedom Forge submits that the new plans do a better job, overall, of
assuring good health care to the plaintiffs. Whether or not this is true,
on this record we cannot determine which is the better plan for the
plaintiffs. We are also wary of accepting the company's (or the
plaintiffs')
vision of which is the better overall plan at the preliminary injunction
stage, especially when the parties are struggling over particular, not
general, aspects. See Shalk v. Teledyne, Inc. , 751 F.Supp. 1261, 1267
(W.D. Mich. 1990) ("[D]efendants claim that the current Teledyne Plus
Plan offers coverage which is ``substantial and in many respects better
than the prior plan. . . .' This argument is of no consequence. It is not
this Court's task to decide which health plan is``better.' ") (emphasis in
original).
24
several of the testifying plaintiffs (Swartzell, Krebs, Norman,
Heller, Cruikshank) did not testify to any particular facts
that would make the switching of plans cause them
irreparable harm. None stated that he or she was on a fixed
income, or that he or she would be unable to pay. At all
events, there was insufficient evidence that any of these
plaintiffs was threatened with a financial burden that
would force them to eschew medical treatment or other
necessities such as food or shelter. Therefore, we will vacate
the preliminary injunction as applied to them.
Our most difficult decisions concern those plaintiffs who
testified to serious financial burdens, but did not represent
that they would have to forego medical treatment. Smith
and Beckwith testified that they were on fixed incomes;
Suloff said that he would be on a fixed income in the
future. But given the relatively low level of the additional
payments under the proposed plans, we can not conclude
that the testimony of a plaintiff that he or she is on a fixed
income is sufficient evidence from which a court can infer
irreparable harm. As we discussed supra, there must be
some specific harm identified that flows from the actual
financial burden in a given case. Therefore, we must also
vacate the order of the District Court as to these plaintiffs
for failure to demonstrate irreparable harm.
III. Probability of Success on the Merits
The balance of this opinion applies only to those
remaining three plaintiffs--Basom, Treaster, and Snyder--
who provided sufficient evidence of irreparable harm. As to
them, we must determine whether the District Court
abused its discretion in concluding that they were
reasonably likely to succeed on the merits.
ERISA provides that "a fiduciary shall discharge his
duties with respect to a plan solely in the interest of the
participants and beneficiaries." 29 U.S.C.S 1104(a)(1). The
fiduciary may not, in the performance of these duties,
"materially mislead those to whom the duties of loyalty and
prudence are owed." In re Unisys Corp. Retiree Med.
Benefits "ERISA" Litig., 57 F.3d 1255, 1261 (3d Cir. 1995).
See also Curcio v. John Hancock Mut. Life Ins. Co. , 33 F.3d
25226, 238 (3d Cir. 1994); Bixler v. Central Pa. Teamsters
Health and Welfare Fund, 12 F.3d 1292, 1300 (3d Cir.
1994); Fischer v. Phila. Elec. Co., 994 F.2d 130 (3d Cir.
1993). A plan administrator, like Sieber and other Freedom
Forge administrators, acts as a fiduciary when explaining
plan benefits and business decisions about plan benefits to
its employees. See Unysis, 57 F.3d at 1261 n.10.17
An employee may recover for a breach of fiduciary duty
if he or she proves that an employer, acting as afiduciary,
made a material misrepresentation that would confuse a
reasonable beneficiary about his or benefits, and the
beneficiary acted thereupon to his or her detriment. See id.
at 1264. Having made such representations, a company
cannot insulate itself from liability by including unequivocal
statements retaining the right to terminate plans at any
time in the SPDs. See id. Moreover, a fiduciary may not
remain silent when he or she knows that a reasonable
beneficiary could rely on the silence to his or her detriment.
See Bixler, 12 F.3d at 1300 ("Th[e] duty to inform . . .
entails not only a negative duty not to misinform, but also
an affirmative duty to inform when the trustee knows that
silence might be harmful.").
The facts of this case, described supra, are so much like
those in Unisys, the landmark case in this area, that we
need spend but little time addressing this prong of the
preliminary injunction standard. In Unisys, as here, the
company announced a significant change in its benefit plan
scheme, after which beneficiaries were to shoulder the
responsibility of paying premiums that had previously been
the exclusive responsibility of the company. The Unisys
plaintiffs objected, noting that their SPD included the
statement that: "Coverage continues for you for life and for
your dependents while they remain eligible provided you
don't stop the contributions for their coverage." 57 F.3d at
1259 (emphasis in original). They also adduced evidence, as
_________________________________________________________________
17. A fiduciary includes any person who "exercises any discretionary
authority or discretionary control respecting management of such plan"
and any person who "has any discretionary authority or discretionary
responsibility in the administration of such plan." 29 U.S.C.
S 1002(21)(A).
26
here, that they had been informally promised "lifetime"
benefits without any reference to a reservations of rights.
See id.Unisys acknowledged the statements regarding lifetime
coverage in the SPDs, but defended on the grounds that
elsewhere in the SPDs it explicitly retained the right to
amend or change the plans at any time. Relying on the
principle that "when a plan administrator explains plan
benefits to its employees, it acts in a fiduciary capacity," id.
at 1261, we concluded that the conflicting statements could
give rise to an action under ERISA because ERISA plan
administrators have an independent fiduciary obligation
"not to misinform employees through material
misrepresentations and incomplete, inconsistent, or
contradictory disclosures." Id. at 1264. We concluded that
a misrepresentation is material if "there is a substantial
likelihood that it would mislead a reasonable employee in
making an adequately informed retirement decision." Id.A. Unisys and Plaintiffs Basom and Tre aster
In this case, as in Unisys, the plaintiffs do not deny that
there is an explicit reservation of the right to terminate or
amend at any time within the booklets for active employees.
They contend, however, that they reasonably believed that
the active employees' booklets did not apply to them. In
support of this contention, the plaintiffs presented evidence
that Freedom Forge distributed separate booklets
summarizing the benefits of pensioners and surviving
spouses that included no explicit reservation of the power
to amend or change the programs.18 Freedom Forge
responds that the lack of reservation clauses in the
booklets is immaterial because the booklets were not
_________________________________________________________________
18. Although some of those booklets did contain a reference to the
possible termination of the programs by Freedom Forge, these references
did not describe a process for unilateral program termination that would
alert a potential retiree to the instability of his or her benefits: "This
continuation provision does not apply if Standard Steel - Division of
Titanium Metals Corporation of America replaces this Program with
another program. In this event, all benefits will cease on the date this
Program is terminated." See supra note 7.
27
actually summary plan descriptions. Although we agree
that the form and title of a document may be considered
when determining whether a beneficiary could reasonably
rely on the statements therein, conflicting assertions cannot
be ignored because they are not in the formal ERISA
document. Unisys did not rely on the official nature of the
SPDs to conclude that the company had breached its duty,
and based its decision in part on the informal
communications of Unisys management. See id. at 1261-
65.
Freedom Forge further contends that the booklets
directed at "Eligible Salaried Employees," which included
explicit reservations of rights, applied to both those who
were active employees and those who were on pensions. It
notes the absence, in the "informal" booklets introduced
into evidence by the plaintiffs, of ERISA-required details,
such as the name of the plan administrator and the means
of complaint, the lack of which makes them something less
than SPDs. The question before us, however, is not what
the booklets actually were, but what they would appear to
be to a reasonable employee. The "informal" booklets that
the plaintiffs introduced into the record are titled
"Programs," suggesting a parallel status with the "formal"
booklets, also entitled "Programs." Furthermore, the
plaintiffs presented testimony of several retirees who stated
they were told and believed that the "Salaried Employees"
booklets did not apply to them. Gerald Sieber, whose
responsibility it had been to explain retirement benefits,
testified that he thought that the retiree booklets, and not
the "Salaried Employees" booklets, defined the rights of the
retirees. Finally, the plaintiffs note that the"Salaried
Employees" booklets include descriptions of several benefits
(such as dental) that do not apply to pensioners, suggesting
that they were not relevant to retirees.
In response to these arguments, Freedom Forge
acknowledges that were it to eliminate benefits altogether,
that might make the misrepresentations actionable. It
submits, however, that since it only intends to amend the
Plan and shift the costs, there was no actual
misrepresentation when its representatives promised
"health benefits . . . for life." Freedom Forge also
28
emphasizes that health care itself has never been"free" in
that beneficiaries have always had to pay copayments and
deductibles. However, some of the testimony at the hearing
indicated that the Freedom Forge employees' understanding
of the promise of life-long health insurance was that they
would never have to pay premiums. The District Court
found this testimony credible, and it is supported by the
record; hence, we do not disturb its conclusion. Given the
substantial rearrangement of the rights and duties
regarding health insurance proposed by Freedom Forge, we
are convinced that there was sufficient evidence that the
proposed changes, if effected, would countermand the
promises of health care for life.
Finally, Freedom Forge suggests that it should not be
liable because it did not anticipate that it would change the
plans, so that the misleading statements were made
without the requisite scienter. We encountered, and
rejected, a like defense in Unisys. See 57 F.3d at 1265
n.15. There, we recognized that the company had no reason
to expect, at the time it distributed the misleading SPDs,
that the plans would be modified. However, because Unisys
was aware that it retained the right to modify, a knowing
failure to clarify the material information about the
retention of power was a breach of its fiduciary duty. We
indicated that in order for a company to avoid liability on
the grounds that it did not expect to change or eliminate a
plan, the change or elimination would have to be, at least,
"completely unanticipated." Id. As in Unisys, Freedom Forge
had sufficient awareness of the power to change the Plan.
See id. ("[T]he company had the foresight to draft and
incorporate reservation of rights clauses into its retiree
medical plans, which expressly gave the company the right
to terminate the plans if they became onerous.").
Based on Unisys, we conclude that the plaintiffs
presented sufficient evidence of statements that would
cause "a substantial likelihood" of "misleading a reasonable
employee in making an adequately informed retirement
decision" and hence that Basom and Treaster are
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reasonably likely to succeed on the merits of their breach
claim. See id.19
B. Unisys and Plaintiff Snyder
Unlike the other two remaining plaintiffs, the case of
Donald Snyder is not controlled by Unisys because
although he went on disability in 1983, he did not retire
until 1999, more than four years after Freedom Forge
began publishing booklets for retirees that included a
strong reservation of rights. Snyder averred that in 1983 he
was told that he and his wife would be taken care of for the
rest of their lives. Unlike the other plaintiffs, who retired
early, he produced no evidence of detrimental reliance on
these misrepresentations. He presumably went on disability
involuntarily and there is no evidence that he retired early.
Since the lawyers for both sides were dealing with the
plaintiffs collectively, the peculiar nature of his claim was
not briefed. Although we do not foreclose the possibility
that Snyder could adduce facts to state a claim for breach
of fiduciary duty under ERISA, the facts before the District
Court after the preliminary injunction hearing do not
suffice to support a conclusion that he is reasonably likely
to succeed on the merits.
_________________________________________________________________
19. Freedom Forge has asserted that, regardless of the strength of
plaintiffs' Unisys argument, they are barred from pursuing any claim by
ERISA's statute of limitations. This is a matter of considerable
difficulty
and implicates sophisticated questions about whether the statute begins
to run at the date of the misrepresentations, the date of the plan
amendment, or some other date, as well as the issues left unresolved in
Kurz v. Philadelphia Elec. Co., 96 F.3d 1544 (3d Cir. 1996), about the
anatomy and scope of the fraudulent concealment doctrine, see id. at
1552 n.5. The District Court concluded that the claims were not likely
to be barred by the statute. However, Freedom Forge's counsel conceded
at oral argument that the statute of limitation defense was not before the
court of appeals "as a substantive statute of limitations argument." As
he noted, "[t]his court will have opportunity in the next Unisys
litigation
to rule on whether or not that statute of limitations [argument] is
substantively correct." Therefore, we do not reach these statute of
limitations questions at this time.
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IV. Conclusion
For the foregoing reasons, we will affirm the District
Court's order as to Basom and Treaster, but will vacate the
preliminary injunction as it applies to all others.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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