Kenneth P. Bidlack v. Wheelabrator Corporation , 993 F.2d 603 ( 1993 )

POSNER, Circuit Judge.

This is a class action on behalf of retired employees of the Wheelabrator Corporation. They claim that collective bargaining agreements between Wheelabrator and the union that represented employees at Wheelabrator’s plant in Mishawaka, Indiana conferred upon the plant’s retired employees lifetime rights to certain health benefits — hence rights that survived the expiration in 1988 of the last collective bargaining agreement between the company and the union applicable to the Mishawaka plant, which Wheelabrator closed that year. The plaintiffs base the suit primarily on section 301 of the Tafb-Hartley Act, 29 U.S.C. § 185, which creates a private right of action to enforce collective bargaining agreements. The briefs devote much space to the federal pension law (Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq.) as well, which does in fact furnish an alternative jurisdictional basis to the Tafb-Hartley Act for maintaining this suit in federal court, 29 U.S.C. § 1132(e)(1), but which has little bearing on the issues in contention. ERISA does not require the vesting of health or other “welfare” benefits, as it does pension benefits, Shaw v. Delta Air Lines, Inc., 463 U.S. 86, 91, 103 S.Ct. 2890, 2897, 77 L.Ed.2d 490 (1983); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732, 105 S.Ct. 2380, 2385, 85 L.Ed.2d 728 (1985); Ryan v. Chromalloy American Corp., 877 F.2d 598, 603 (7th Cir.1989), but equally it does not forbid their vesting by a written contract, id., which could be part of a collective bargaining agreement. International Union, United Auto Workers v. Yard-Man, Inc., 716 F.2d 1476, 1479-80 (6th Cir.1983); United Steelworkers v. Fort Pitt Steel Casting, 598 F.2d 1273 (3d Cir.1979); cf. In re White Farm Equipment Co., 788 F.2d 1186, 1193 (6th Cir.1986).

The district court granted summary judgment for the company; and dismissed the suit, because “an examination of the formal plan documents and the collective bargaining agreements reveals no intention on Wheelab-rator’s part to provide pre-1986 retirees the same level of benefits at no cost for life” and he believed that the requisite intention could not be proved by extrinsic evidence, that is, evidence outside the written contracts themselves. 763 F.Supp. 396 (N.D.Ind.1991). The plaintiffs appealed and the appeal was argued, as is customary, before a three-judge panel. Before the panel issued its decision, the full court, in accordance with Circuit Rule 40(f), decided to hear the case en banc in order to reexamine an earlier decision of the court, Senn v. United Dominion Industries, Inc., 951 F.2d 806 (7th Cir.1992). Judge Cummings, a member of the original panel, has recused himself from further consideration of the case because of a transaction by Wheelabrator that occurred after the en banc vote.

The main question briefed and argued by the parties is whether the absence from the collective bargaining agreements of any provision that explicitly vests the health benefits of retired employees defeats those employees’ claims even though some contractual language and a great deal of “extrinsic” evidence — evidence apart from the language of the agreements — suggest that the parties may have intended to confer vested rights on the retired employees, that is, rights that would outlast the expiration of the last collective bargaining agreement. If the answer is “yes” — the inexplicitness of the agreements is an insuperable obstacle to the suit — the district judge was right to grant summary judgment for the company. A second question, presented by Wheelabrator, is whether, even if the retired employees had vested rights, it" is plain from the terms of the collective bargaining agreements that their rights were no greater than those of the active employees. For Wheelabrator did not cut off the retired employees of the Mishawa-ka plant when the last collective bargaining agreement applicable to employees at that plant expired and the plant was closed. It is continuing to pay their health benefits at the same level and cost as the health benefits that it pays the active employees at its other plants.

Beginning with the collective bargaining agreement signed in 1965, every agreement between the company and the union in this ease up to and including the last one applicable to the Mishawaka plant, which was signed in 1985, contained a section which provided both that “those employees who have retired since September 22, 1959, will have the 'full cost of their Blue Cross-Blue Shield coverage paid by the Company after they attain sixty-five (65) years of age” and that they would be entitled to certain supplemental health benefits, also paid for by the company, “which, combined with Medicare, will provide a level of benefits equal to the Wheelabrator Blue Cross-Blue Shield plan for active and retired employees sixty-five (65) years of age or over” and which “shall be continued for the spouse after the death of the retiree.” We have quoted from the final collective bargaining agreement but the corresponding language of the earlier agreements is materially identical. There are, however, other differences between the agreements. In particular, the final agreement contains a provision not found in the earlier ones. It is the section following the one from which we quoted and it provides explicitly for the “vesting” of certain health benefits for employees who retire after the new agreement takes effect, that is, after January 1, 1986. The immediately preceding section, the one at issue in this case, governs the rights of employees who retired earlier; it is only employees in this group, that is, employees who retired on or before January 1, 1986, who are members of the plaintiff class.

Another contractual provision to which the parties have referred us is found in the contract between Wheelabrator and Blue Cross-Blue Shield for the purchase by the former of health insurance sold by the latter. The provision in question authorizes the company to change the level of benefits insured by Blue Cross-Blue Shield. We do not think it has much relevance to the main issue in this case, that of the duration of benefits. The union was not a party to the contract between Wheelabrator and its insurer, and anyway the issue is not the obligations of Blue Cross-Blue Shield to Wheelabrator but Wheelabrator’s obligations to its retired employees. Those obligations are defined by the collective bargaining agreements, not by the insurance contract. The latter however may be relevant to the dispute over the level of benefits to which the retired employees are entitled, assuming that they are entitled to any benefits at all after the last collective bargaining agreement in which these employees were mentioned expired.

There is evidence that, if believed (an important qualification, for there has been no trial), suggests that the language we quoted from the collective bargaining agreements was intended to confer lifetime benefits on employees who retired before 1986. For twenty years — from 1968 to 1988 — Wheelabrator issued a form to each newly retired employee which under the subheading “Medical Insurance (Blue Cross-Blue Shield of Indiana)” stated without qualification that “both you and your spouse will be covered for the remainder of your lives” at no cost. And a Wheelabrator executive who participated in the negotiation of several of the collective bargaining contracts testified that he believed that they were intended to provide retired employees with vested rights to health benefits. We need not discuss the other extrinsic evidence in support of, or for that matter against, the plaintiffs interpretation. The issue is not what the contract in fact means but whether the plaintiffs are entitled to a trial on what it means.

Wheelabrator points out that ordinarily when a contract expires, it — expires. It is at an end. The parties have no more rights or duties under it. Sometimes, however, a contract creates entitlements that outlast it. At argument the plaintiffs’ counsel gave the example of wages due under a contract of employment at will, a contract terminable at the whim of either party. Suppose the employer’s practice is to pay employees at the end of each week for the work they have done during the week. Jones, an employee at will, is fired at noon on Wednesday, having worked 20 hours that week. The contract is at an end as of noon that day, and yet, quite apart from any statutory entitlement that employees may have to be paid at the agreed rate for work actually done (National Metalcrafters v. McNeil, 784 F.2d 817 (7th Cir.1986)), the employee would have a compelling argument that the employer’s promise to pay for work actually done had survived the expiration of the contract. This is not the best example for the plaintiffs’ point, however, because an alternative conceptualization of employment at will treats it as a unilateral contract that is accepted by the employee’s working at the agreed wage. 1A Arthur Linton Corbin, Corbin on Contracts § 152 at pp. 13-14 (1963). So understood, a contract of employment at will does not end until the employee is paid. But there are plenty of better examples — examples of bilateral contracts that create obligations that outlive the term of the contract because the parties wanted them to do so. An employment contract that contains a post-employment restrictive covenant is one, Tower Oil & Technology Co. v. Buckley, 99 Ill.App.3d 637, 54 Ill.Dec. 843, 425 N.E.2d 1060 (1981); J.D. Marshall International, Inc. v. Fradkin, 87 Ill.App.3d 118, 42 Ill.Dec. 509, 409 N.E.2d 4 (1980), and there are others. Litton Financial Printing Division v. NLRB, — U.S. -, -, 111 S.Ct. 2215, 2226, 115 L.Ed.2d 177 (1991); Ryan v. Chromalloy American Corp., supra; In re White Farm Equipment Co., supra, 788 F.2d at 1193. No doubt a court should cast a cold eye on contentions that a contract with a fixed term actually created a perpetual obligation, William B. Tanner Co. v. Sparta-Tomah Broadcasting Co., 716 F.2d 1155, 1159 (7th Cir.1983), and should, therefore, as Senn and many other cases hold (notably Litton), presume that a collective bargaining agreement ceases to obligate the employer when the agreement’s term (invariably three years) is up. But it is not an irrebuttable presumption. “Rights which accrued or vested under the [collective bargaining] agreement will, as a general rule, survive termination of the agreement.” Litton Financial Printing Division v. NLRB, supra, — U.S. at -, 111 S.Ct. at 2226. The question is what it takes to rebut the presumption. We add that the obligation for which the plaintiffs contend in this suit is not perpetual, because retired people and their widows (or widowers) do not live forever.

We reject the extreme positions on what it takes to rebut the presumption that all contractual obligations cease on the expiration date stated in the contract. The first is that the contract must either use the word “vest” or must state unequivocally that it is creating rights that will not expire when the contract expires. The second is that testimony about the parties’ intentions can substitute for contractual language indicative of intent and therefore create rights and duties that last beyond the expiration of the contract. The first approach could be defended only as a means of making life simpler for courts by creating a form that parties must use to create enforceable rights and obligations; and while we naturally are sympathetic to the institutional concerns behind such a suggestion, we do not think that a court should refuse to enforce a contract merely because the parties have failed to use a prescribed formula. It is one thing for a court to lay down default rules to solve contractual disputes when the parties’ intentions cannot be determined. That is a wholly appropriate judicial function. It is another thing for us to say to the contract parties, we can see what you’re driving at but as you have not used our preferred form of words we shall not enforce your contract. Cf. Johnson v. United States, 163 Fed. 30, 32 (1st Cir.1908) (Holmes, J.). Of course, it was the courts that, long ago, invented the requirement of consideration, which in one aspect is a form with which parties are required to comply as a condition of seeking the enforcement of their “contract.” But courts should be cautious about adding formal hoops that contract parties must jump through, and anyway we do not understand Wheelabrator to be urging us to do that here.

The second extreme, that of allowing parties to substitute oral testimony for contractual language, errs by depriving parties of the protection of a written contract. For we are supposing a case in which the written contract is silent on a subject, and a party asks the court to interpolate a clause on the basis of extrinsic evidence showing that the parties would have included the clause if they had thought about the matter. Courts do sometimes interpolate contract clauses. Restatement (Second) of Contracts § 204 (1979). A famous example is Judge Cardozo’s interpolation of a best-efforts clause in a contract providing for an exclusive dealership. Wood v. Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917). But he based this move on the structure of the contract rather than on self-serving testimony by a party. By granting an exclusive license to market her dress designs, Lady Duff-Gordon had delivered herself into her licensee’s power, for unless he had a contractual obligation to market her designs he could threaten to sit on the license and do nothing unless she increased his compensation. It was unlikely that the parties had intended so one-sided a deal. The Supreme Court in Litton referred approvingly to a parallel interpolation — that the duty to arbitrate a dispute under a contract providing for arbitration survives the expiration of the contract. -U.S. at - n. 3, 111 S.Ct. at 2226 n. 3. (And it thought this precept applicable to collective bargaining agreements. Id. at -, 111 S.Ct. at 2226.) The utility of an arbitration clause would be greatly impaired if the duty to arbitrate disputes arising under the contract expired with the contract, since such disputes might easily remain pending on the date of expiration. If the contract were terminable by either side on short notice, as is common, a party who saw a dispute looming could escape having to arbitrate it simply by terminating the contract.

Since there is no similar structural necessity for a collective bargaining agreement to include an undertaking .by the employer to pay lifetime medical benefits to retired employees, the use of extrinsic evidence to create such obligations nowhere alluded to in the contract would unjustifiably deprive the parties of the limitation of liabilities that is implicit in the negotiation of a written contract having a definite expiration date. Subject only to the limited protection against unforeseeable contractual obligations that is conferred by the doctrine of impossibility, a party might find itself saddled with obligations for the next twenty or thirty years (or even more, in the case of a surviving spouse’s benefits) even though it had reasonably believed that all its obligations would end in three years, when the contract expired by its own terms. Although extrinsic evidence is admissible to show that a written contract which looks clear is actually ambiguous, perhaps because the parties were using words in a special sense, FDIC v. W.R. Grace & Co., 877 F.2d 614, 620-21 (7th Cir.1989), there must be either contractual language on which to hang the label of ambiguous or some yawning void, as in the Duff-Gordon case, that cries out for an implied term. Extrinsic evidence should not be used to add terms to a contract that is plausibly complete without them. Calder v. Camp Grove State Bank, 892 F.2d 629, 632 (7th Cir.1990).

If therefore the collective bargaining agreements in this case were completely silent on the duration of health benefits for retired employees, then since (unlike Duff-Gordon and Litton) nothing in the structure of the agreements required that the duration be perpetual, we would not allow extrinsic evidence to show that those employees have a perpetual entitlement. But the agreements are not silent on the issue; they are merely vague. They say that once retired employees reach the age of 65 the company will pick up the full tab for their health insurance and that when they die their spouses will continue to receive supplemental health benefits, again at the company’s cost. This could be thought a promise to retired employees that they and their spouses will be covered for the rest of their lives. For the provision does not say “when they die or the collective bargaining agreement expires, whichever occurs first,” but simply when they die. The corresponding language in Senn was weaker: it was that the company “will continue for retired employees” a specified premium contribution. And the final agreement between the company and the union in that case, which could be thought declaratory of earlier understandings, said that coverage “shall be continued during the term of this Agreement.” 951 F.2d at 810, 815 (emphasis added). In addition, each agreement in the series contained an integration clause, declaring the agreement to be the exclusive source of the parties’ rights and duties, and although the parol evidence rule, which enforces integration clauses by barring evidence of side agreements, does not bar the use of extrinsic evidence to clarify the meaning of an ambiguous text, FDIC v. W.R. Grace & Co., supra, 877 F.2d at 620, the presence of such a clause is some indication of the parties’ desire to limit a free-ranging judicial discretion to interpolate terms.

We do not suggest that the interpretation of the relevant provision of the collective bargaining agreement in the present case as creating lifetime entitlements to company-paid health benefits is inevitable. The provision in question could mean just that retired employees are covered for the three-year term of the collective bargaining agreement. This inference is strengthened by the explicit use of the term “vesting” in the next section of the 1985 collective bargaining agreement but is weakened by the fact that the preceding section, the one in issue here, was carried over essentially verbatim from the earlier collective bargaining agreements. The vesting provision has a separate provenance, and we are given no reason to suppose that the two sections were actually compared in the drafting process, though a trial might reveal that they were. And if the guarantee of company-paid health insurance is limited to the three years in which the collective bargaining agreement is in force, the ringing promise of spousal benefits has rather a hollow sound, as it is easy to imagine a case in which an employee who retired years later dies in 1987 — and at the stroke of midnight on December 31 of that year his wife’s supplemental benefits would terminate, if the company’s interpretation is adopted. Yet, continuing the argumentative ping-pong game, we mustn’t leap to. the conclusion that the company’s position makes the benefits to retired employees “illusory.” Three years, or even three days, are better than none; and a company is naturally reluctant to saddle itself with indefinite future obligations— though we shouldn’t rush to the opposite extreme, and suppose that Wheelabrator will be crushed if it must pay these benefits for life. Their sum is not trivial, but most of the health costs of the retired are picked up by Medicare rather than by Blue Cross-Blue Shield.

The cynic might' argue that the union would never have pressed for lifetime guarantees for retired employees — they do not pay union dues, vote in union elections, or vote in representation elections, for they are no longer members of the bargaining unit. Allied Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 92 S.Ct. 383, 30 L.Ed.2d 341 (1971). The counterargument is that, knowing this, current employees who may retire in the next three years want their collective bargaining agreement to vest health benefits. United Auto Workers v. Yard-Man, Inc., supra, 716 F.2d at 1482. Most, perhaps all, the class members were active employees when a collective bargaining agreement containing the provision for retirees’ health benefits was signed.

We could argue back and forth till we were blue in the face over the proper interpretation of the language relating to the retirees’ health benefits without reaching a confident conclusion, if all we had to go on was the written contract itself. The contract, even when its logic and its other provisions as well as just the provision in issue are considered, is inconclusive on the question whether it confers an entitlement to health benefits that outlasts the contract’s expiration date. A completely intractable issue of contract interpretation can bé resolved only by the application of some default rule — a burden of persuasion, a clear-meaning rule, a presumption based on the authorship of the contract. But the time to throw up one’s hands and apply such a rule is after extrinsic evidence has been considered. For until then, we do not know whether we have an intractable interpretive issue or merely an issue that cannot be resolved without testimony or other evidence besides the language and logic (as in Wood v. Duff-Gordon) of the contract.

Only a posture, not easy to reconcile with the Seventh Amendment, of extreme mistrust of juries would entitle us to pretermit a factual inquiry and apply an interpretive canon or other tie-breaker before we know that the sides are actually tied. The contract in this case is ambiguous and both sides are poised to present testimony and documents that they claim will disambiguate it. We think they should be allowed to do so despite the alarm bells rung in the amicus brief submitted to us by an employers’ association which argues that without a strong presumption against vesting, companies will be visited with crushing liabilities (but no numbers are provided), unions will be discouraged from negotiating over health benefits, the containment of health costs will be impeded, and already retired employees will receive windfalls at the expense of the newly and the not-yet retired. That is to assign an awful lot of weight to a rule of interpretation that parties are free to change by contract. Employers adamant against assuming perpetual obligations can eliminate all doubt by insisting on a clause that makes any entitlement to health benefits granted by the agreement expire on the date the agreement expires. Employers don’t even have to bargain over health benefits of retired employees. Allied Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., supra. They certainly don’t have to grant such benefits in perpetuo. If they did so in the past, not anticipating the recent rise in health costs, they should not expect the courts to bail them out by undoing the contractually determined allocation of risk on the question. Courts do not sit to relieve contract parties of their improvident commitments, except within the limited dispensation conferred by the doctrine of impossibility, not here invoked. Contracting parties who want to be spared the uncertainties of trial by jury have only themselves to blame if by failing to specify the limits of their undertakings they open the door to extrinsic evidence of contractual meaning.

We are not done, because there is the company’s further argument that even if the retired employees have vested rights, the rights are limited to those enjoyed by active employees. Even if this is true, we disagree that it provides an alternative ground for affirming the district court’s grant of summary judgment. The plaintiffs claim a lifetime right to benefits — ignore for a moment what level of benefits they might be entitled to. The fact that the company, without acknowledging their entitlement, is continuing to pay them the level of benefits to which (if the company’s subsidiary argument is correct) they would be entitled if they had an entitlement cannot be considered a full satisfaction of their claim. Unless their right has vested, the company can cut them off tomorrow. They are entitled to a declaration of their rights. The dispute over those rights is a real one. If they have no contractual guaranty of benefits, they had better start shopping around for other medical insurance.

The language that we quoted earlier from the last collective bargaining agreement seemed to key retired employees’ benefits to those of active employees, as the company argues. However, the 1980 agreement had provided for the first time that the health benefits to which employees were entitled would include “Dental, Vision and Hearing for all retirees” and that “the Drug Program co-payment for retirees will be reduced to $2.00.” These two benefits were removed in the last agreement for active as well as retired employees, permissibly so for the latter if the only right that had vested was a right to equality in health benefits with the active employees. The fact that the agreement specified retirees’ rights separately from those of active employees, extending to them benefits which previously had been extended to the active employees alone, suggests, though hardly demonstrates, that the collective bargaining agreements did not make the two groups march in lock step. The argument contra is that the company was hardly likely to agree to a ratchet, whereby anytime it expanded the benefits for active employees it established a plateau under the retired employees. A vested right to benefits equal to and hence varying with those of the active employees would give the retirees a good deal of protection, since health benefits are an important fringe benefit.

There is additional evidence that the collective bargaining agreements may not have fixed the same level of benefits for active and retired employees. The agreements define “employees” as employees of the Mishawaka plant, but, that plant having been closed, the company is paying the retirees the level of benefits of its active employees in other plants. Suppose it provided different levels of benefit to active employees in different plants. Which level would provide the benchmark for the retired employees? And in 1985 active employees were required to share the cost of the premium for certain benefits while the retired employees continued to receive those benefits entirely at Wheelabrator’s expense. So we cannot be certain that the agreements were intended to give the retirees no greater (net) benefits than active employees, and even if we were certain, there would still be the unresolved question whether the retired employees were receiving those benefits as a matter of grace or of right.

REVERSED AND REMANDED.