In Re: Unisys Corp

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
6-28-1995
In Re: Unisys Corp
Precedential or Non-Precedential:
Docket 94-1800
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 94-1800
___________
IN RE: UNISYS CORP. RETIREE
MEDICAL BENEFIT "ERISA" LITIGATION
*Gerald E. Pickering, Fred Tonnies,
William Leonhardt, Evelyn Schmidt,
Dudley Keyes, David Kahl, Paul Wright,
Robert Wilt, Clay Bernichon, Edward Valle,
Robert B. Welsh, Solveig Tschann, Bernard
J. Jansen, Donald I. Klippenstein,
Frederick W. Hoppe, Ludson F. Worsham,
Edwin Marjala and Warren Hall, individually
and on behalf of all members of the Sperry
Class previously certified by the Court whose
claims have not been settled,
Appellants
*(Pursuant to F.R.A.P. 12(a))
___________
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. MDL 969)
___________
Argued
May 4, 1995
Before: MANSMANN, SCIRICA and McKEE, Circuit Judges.
(Filed June 28, l995)
___________
Alan M. Sandals, Esquire
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103
Joseph R. Roda, Esquire (Argued)
36 East King Street
301 Cipher Building
Lancaster, PA 17602
J. Dennis Faucher, Esquire
Miller, Faucher, Chertow,
Cafferty & Wexler
One Penn Square West
Suite 1801
Philadelphia, PA 19102
Seymour J. Mansfield, Esquire
Mansfield & Tanick
900 Second Avenue South
Suite 1560
Minneapolis, MN 55402
Sarah E. Siskind, Esquire
Davis, Miner, Barnhill & Galland
44 East Mifflin Street
Suite 803
Madison, WI 53703
Counsel for Appellees
Gerald E. Pickering, Fred Tonnies,
William Leonhardt, Evelyn Schmidt,
Dudley Keyes, David Kahl, Paul Wright,
Robert Wilt, Clay Bernichon, Edward Valle,
Robert B. Welsh, Solveig Tschann, Ludson F.
Worsham, Edwin Marjala, Warren J. Hall,
individually and on behalf of all members of
the Sperry Class previously certified by the
Court whose claims have not been settled
James F. Roegge, Esquire
Julie L. Levi, Esquire
Meagher & Geer
33 South Sixth Street
4200 Multifoods Tower
Minneapolis, MN 55402
Counsel for Appellees
Gerald E. Pickering, Fred Tonnies,
William Leonhardt, Evelyn Schmidt,
Dudley Keyes, David Kahl, Paul Wright,
Robert Wilt, Clay Bernichon, Edward Valle,
Robert B. Welsh, Solveig Tschann,
Bernard J. Jansen, Donald I. Klippenstein,
Frederick W. Hoppe
Joseph J. Costello, Esquire
Francis M. Milone Esquire (Argued)
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
Joseph A. Teklits
UNISYS Corporation
P.O. Box 500
M.S. C2NW 14
Blue Bell, PA 19424
Kevin P. Roddy, Esq.
Milberg, Weiss, Bershad, Hynes & Lerach
355 South Grand Avenue
Suite 4170
Los Angeles, CA 90071
Henry H. Rossbacher, Esq.
Rosbacher & Associates
445 South Figueroa St.,
Union Bank Plaza
24th Floor
Los Angeles, CA 90071
Counsel for Appellant
___________
OPINION OF THE COURT
__________
MANSMANN, Circuit Judge.
This class action arises out of the termination of
post-retirement medical benefit plans, sponsored by Unisys for
retirees and disabled former employees of Unisys and its
corporate predecessors, Sperry Corporation and Burroughs
Corporation. The retirees seek to recover post-retirement
medical benefits under the terms of their welfare benefit plans
and under the Employee Retirement Income Security Act's
("ERISA's") provisions for appropriate equitable relief.
We are asked to decide in this particular appeal1
whether the district court erred in holding, on this breach of
contract claim, that summary plan descriptions that used the
terms "lifetime" or "for life" to describe the duration of
medical benefits, while at the same time reserving the employer's
right to modify or terminate at "any time" and "for any reason"
the plans under which these benefits are provided, were
unambiguous. We also address whether the district court erred in
refusing to reinstate the retirees' estoppel claims upon which
1
. This appeal concerns some of the claims of the Sperry
regular retirees, and the claims of a sub-group of Sperry early
retirees.
The appeals docketed at Nos. 94-1801, 94-1875, 94-1912
and 94-2216 concern the claims of the Unisys and Burroughs
retirees, as well as the remaining claims of the Sperry retirees.
In appeal No. 94-1801, the Unisys early retirees have appealed
from an adverse judgment rendered after trial on their claims for
breach of contract, breach of fiduciary duty and estoppel. The
claims of the Burroughs early retirees and many of the claims of
the Sperry early retirees were settled pursuant to a partial
settlement agreement between Unisys and these retirees. In
appeal No. 94-1875, Unisys has appealed from an order of the
district court reinstating the Sperry retirees' claims for breach
of fiduciary duty. In appeal No. 94-1912, the Burroughs and
Unisys regular retirees have appealed from the district court's
grant of summary judgment in favor of Unisys on their breach of
contract and estoppel claims. In appeal No. 94-2166, a sub-group
of Sperry retirees attempted to challenge the partial settlement
between Unisys and the Sperry and Burroughs early retirees which
did not include them.
On October 3, 1994 we granted the parties' joint motion
to consolidate appeal Nos. 94-1800, 94-1801, 94-1875 and 94-1912
for purposes of filing a single joint appendix and for
disposition. All of these appeals have now been resolved, either
by our decisions in published opinions see Nos. 94-1800 and 94-
1875, or by memorandum opinions rendered in Nos. 94-1801, 94-1912
and 94-2216.
Unisys had earlier been granted summary judgment. We will affirm
the judgment of the district court.
I.
In September of 1986, Sperry Corporation and Burroughs
Corporation merged to form Unisys Corporation. Prior to the
merger, Sperry consisted of a number of business units or
divisions. Until 1984 each Sperry division maintained its own
medical benefits program, with each described in a separate
summary plan description. In 1984, in an attempt to streamline
the medical benefits plans and in response to rising medical
costs, Sperry implemented Medflex, a corporate-wide medical
benefits plan that applied to the entire Sperry Corporation.2
Medflex was applied to future retirees only; existing retirees
continued to receive coverage under the pre-Medflex plans which
applied when they retired.
Following the merger in 1986, Unisys continued the
Medflex plan for active employees and for those who retired after
its implementation but prior to April 2, 1989. Unisys also
continued all of the pre-Medflex plans for those who retired
prior to Medflex's implementation.3 In 1989, Unisys effected the
2
. Medflex applied to all Sperry business units by January
1, 1984, with the exception of one sub-group of the Sperry
Division, which commenced participation in Medflex on January 1,
1985.
3
. Following the merger, Unisys maintained all of the
separate medical benefit plans for its retirees -- approximately
75 plans, a situation described by one Unisys executive as a
"royal administrative headache." This abundance of plans was due
primarily to Sperry's corporate structure which consisted of
consolidation of its retiree medical benefit plans when it
created the Unisys Post-Retirement and Extended Disability
Medical Plan to cover all employees who retired after April 1,
1989, most of whom were former Sperry and Burroughs employees.
On November 3, 1992, Unisys publicly announced that
effective January 1, 1993, it was terminating all existing
medical benefit plans and replacing all of the pre-existing
medical plans with the new Unisys Post-Retirement and Extended
Medical Disability Plan. Under the new plan, retirees would be
responsible for increasing levels of contributions until January
1, 1995, when they would have to pay the full cost of their
premiums. Thus, the new plan sharply contrasted with earlier
plans, under the majority of which Unisys paid the entire premium
for an individual's life and provided benefits for the
individual's spouse as well.4
(..continued)
several business units or divisions, with each division having
its own medical plan. Further, the district court found that
even in a single Sperry division, several plans often existed due
to the company's practice of maintaining the plan under which an
individual retired and implementing new plans prospectively only.
4
. Unisys' decision to terminate the benefit plans under
which it had provided coverage and to replace those plans with
the new Unisys Post Retirement and Extended Disability Medical
Plan was challenged in nine separate actions which the Judicial
Panel on Multidistrict Litigation transferred to the Eastern
District of Pennsylvania and consolidated for disposition
pursuant to 28 U.S.C. § 1407. On June 9, 1993, after determining
that Unisys "acted on grounds generally applicable to the class,"
the district court certified the case as a class action pursuant
to Fed. R. Civ. P.23(b)(2). The class consists of approximately
21,000 former non-union employees of Sperry, Burroughs and
Unisys. The court certified three distinct classes: Unisys
retirees, Sperry retirees or Burroughs retirees. The claims of
each class were adjudicated separately.
The appellees in this case are former employees of
Sperry Corporation (and their eligible dependents) who retired
between 1969 and April 1, 1989, from Sperry Corporation or
Unisys, Sperry's successor. Following Unisys' termination of
their post-retirement medical benefit plans in late 1992, the
retirees sought relief based on three theories: breach of
contract, equitable estoppel, and breach of fiduciary duty. The
Sperry retirees argued that Unisys' termination of their
respective medical plans violated ERISA. They argued first that
Unisys had denied them "vested" benefits in violation of 29
U.S.C. § 1132(a)(1)(B) because the summary plan descriptions
("SPDs") explaining their medical benefits contained the term
"lifetime" benefits. Regarding their contract claims, the
retirees relied on the explicit lifetime language in the plans,
e.g., "when you retire, your medical benefit will be continued
for the rest of your life", and on statements made by the company
both orally and in writing to the same effect.5
(..continued)
The retirees asserted two sets of claims: general
claims on behalf of all retirees, and separate claims on behalf
of "early" retirees who retired under various early retirement
incentive programs offered by the company throughout the 1980s.
Many of the claims of the early retirees were settled after
trial, but not the claims of a subgroup of Sperry early retirees
denominated as VRIFs, who are part of this appeal. See also
appeal No. 94-2166.
5
. A subgroup of Sperry retirees who retired pursuant to a
voluntary reduction in force asserted a separate contract claim
of their own that the company had induced them to retire earlier
than they would have done by representing that if they retired,
they would preserve the post-retirement coverage in effect under
then current plans. These "VRIF" retirees argued that they
accepted Unisys' "offer" by retiring early, thus forming separate
bilateral contracts.
The Medflex SPD is illustrative. A Sperry employee who
retired during the period January 1, 1984 through April 1, 1989
received medical benefits under this plan. The SPD for Medflex
is set forth in a booklet titled, "Your Company and You."
Included in this plan was the following description of retiree
medical benefit coverage:
If you're eligible, Medical Plan benefits
continue without cost after you terminate
active employment. Benefits also may
continue on a contributory basis for your
eligible dependents who are covered when your
employment terminated. . . . Coverage
continues for you for life and for your
dependents while they remain eligible
provided you don't stop the contributions for
their coverage. After your death, your
eligible dependents may continue coverage by
making the require contributions. Their
coverage continues until your spouse dies or
remarries.
(A 2227) (emphasis added).
The retirees argued alternatively, that even if the
court were to find that "lifetime" is not synonymous with
"vested", the evidence established that Unisys intended that a
reservation of rights clause in the plan, enabling the company to
change the plan at will, only applied to active employees and not
to retirees; thus, the company never intended to reserve its
right to terminate the plans as far as retirees are concerned.
In addition, the retirees contended that Unisys breached its
fiduciary duty by systematically misrepresenting the plans and
should be equitably estopped from exercising any right to
terminate their benefits.6
Unisys responded that it had indeed reserved the right
to terminate the retirees' medical plans due to the "reservation
of rights clauses" or "RORs" located in other sections of the
plans. Typical of these clauses is the one set forth in the SPD
describing the Medflex plan. The Medflex SPD booklet, "Your
Company and You," was distributed to all employees and contained
the following reservation of rights clause:
Plan Continuation
The Company expects to continue the Plans,
but reserves the right to change or end them
at any time. The Company's decision to
change or end the Plan may be due to changes
in federal or state laws governing welfare or
retirement benefits, the requirements of the
IRS or ERISA, the provisions of a contract or
policy involving an insurance company or any
other reason . . . .
(A 2750) (emphasis added).
In addition to the provisions set forth in the summary
plan descriptions, information about retiree medical benefits was
also conveyed to the Sperry retirees through various informal
oral and written communications. As in the summary plan
descriptions, the duration of medical benefits was described as
being "for life" or for the "lifetime" of the retiree and spouse.
6
. The Sperry retirees' breach of fiduciary claim is not
implicated in this appeal. It is the subject of the appeal
docketed at 94-1875.
Sperry did not include in these informal communications a
reference to the reservation of rights clause.
Notwithstanding these communications, Unisys denied
having created vested medical benefits through its use of the
words "lifetime" or "for life", and early in the litigation filed
a motion for summary judgment seeking dismissal of all of the
regular retirees' claims based on the unambiguous reservation of
rights clauses in the plans. Although the district court granted
Unisys' motion on the retirees' breach of fiduciary duty and
estoppel claims, it denied summary judgment on the retirees'
contract or plan-based claim. The district court initially found
that the internal inconsistency between the lifetime promises and
the reservations of rights clauses made the plans ambiguous and
thus a trial on the extrinsic evidence was necessary to resolve
the ambiguity. In re Unisys, 837 F. Supp. 670, 679 (E.D. Pa.
1993). After trial,7 the district court reversed its position on
both the contract and breach of fiduciary duty claims, entering
judgment against the Sperry regular and VRIF retirees on their
contract claims but reinstating the Sperry retirees' breach of
fiduciary claim.8
7
. Although the retirees have also appealed from the
district court's order striking their demand for a jury trial, we
need not address this issue on appeal given our disposition of
the contract ambiguity issue.
8
. On October 13, 1993, the district court granted summary
judgment in favor of Unisys on the Sperry retirees' claim that
Unisys had breached its fiduciary duty. In re Unisys, 837 F.
Supp. at 670, 679-80. At trial, the Sperry retirees moved for
reconsideration of their breach of fiduciary duty claim in light
of our decision, rendered during trial, in Bixler v. Central Pa.
Teamsters Health and Welfare Fund, in which we held that a direct
The district court had jurisdiction pursuant to 28
U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1). We have jurisdiction
pursuant to 28 U.S.C. § 1291.
II.
A.
ERISA is a comprehensive statute enacted "to promote
the interests of employees and their beneficiaries in employee
benefit plans," Shaw v. Delta Airlines, Inc., 463 U.S. 85, 90
(1983), and "to protect contractually defined benefits,"
Massachusetts Mutual Life Ins. v. Russell, 473 U.S. 134, 148
(1985). See also 29 U.S.C. § 1001. ERISA recognizes two types
of employee benefit plans: pension plans and welfare plans.
Deibler v. Local Union 23, 973 F.2d 206, 209 (3d Cir. 1992). In
general, welfare plans provide "medical, surgical or hospital
care or benefits, or benefits in the event of sickness, accident,
disability, death or unemployment . . . ." 29 U.S.C. § 1002(1).
Pension plans provide: (i) retirement income to employees or
(ii) result in a deferral of income by employees for periods
extending to the termination of covered employment or beyond. 29
U.S.C. § 1002(2)(A). Both Unisys and the retirees agree that the
retiree medical benefit plans at issue in this case are welfare
benefit plans under 29 U.S.C. § 1002(1).
(..continued)
action for breach of fiduciary duty is available under section
1132(a)(3)(B). 12 F.3d 1292 (3d Cir. 1994). Relying on Bixler,
the district court granted this motion and reinstated the Sperry
retirees' claims for breach of fiduciary duty.
The implications of this are significant. Although
ERISA contains elaborate vesting requirements for pension plans,
ERISA does not require automatic vesting of welfare benefit
plans. Alexander v. Primerica Holdings, Inc., 967 F.2d 90, 95
(3d Cir. 1992); Smith v. Hartford Ins. Co., 6 F.3d at 136 (3d
Cir. 1994). Congress did not impose vesting requirements on
welfare plans because it determined that "[t]o require the
vesting of those ancillary benefits would seriously complicate
the administration and increase the cost of plans whose primary
function is to provide retirement income." Hozier v. Midwest
Fasteners, Inc., 908 F.2d 1155, 1160 (3d Cir. 1990) (citing
H.Rep. No. 807, 93rd Congr., 2d Sess. 60, reprinted in 1974 U.S.
Code Cong. & Admin. News 4670, 4726). In rejecting the automatic
vesting of welfare plans, Congress evidenced its recognition of
the need for flexibility with regard to an employer's right to
change medical plans. As the Court of Appeals for the Second
Circuit observed:
Automatic vesting was rejected because the
costs of such plans are subject to
fluctuating and unpredictable variables.
Actuarial decisions concerning fixed
annuities are based on fairly stable data,
and vesting is appropriate. In contrast,
medical insurance must take account of
inflation, changes in medical practice and
technology, and increases in the cost of
treatment independent of inflation. These
unstable variables prevent accurate
prediction of future needs and costs.
Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir.
1988). See also 29 U.S.C. § 1051.
Nonetheless, in some situations, a welfare plan may
provide a vested benefit. Alexander, supra, 967 F.2d at 95;
Schoonejongen v. Curtiss-Wright, 18 F.3d 1034, 1042 (3d Cir.
1994), rev'd and remanded on other grounds, ___ U.S. ___, 115 S.
Ct. 1223 (1995). The plan participant bears the burden of
proving, by a preponderance of the evidence, that the employer
intended the welfare benefits to be vested. Howe v. Varity
Corp., 896 F.2d 1107 (8th Cir. 1990).
ERISA's framework ensures that employee benefit plans
be governed by written documents and summary plans descriptions,
which are the statutorily established means of informing
participants and beneficiaries of the terms of their plan and its
benefits. See, e.g., Hozier v. Midwest Fasteners, Inc., supra;
Confer v. Custom Engineering Co., 952 F.2d 41 (3d Cir. 1991);
Hamilton v. Air Jamaica, Ltd., 945 F.2d 74 (3d Cir. 1991), cert.
denied, 112 S. Ct. 1479 (1992); 29 U.S.C. § 1022(a)(1).
Accordingly, any retiree's right to lifetime medical benefits
under a plan can only be found if it is established by the terms
of the ERISA-governed employee benefit plan.
A court must examine the plan documents. Boyer v.
Douglas Components Corp., 986 F.2d 999 (6th Cir. 1993). Extra-
ERISA commitments, such as the right to receive free lifetime
coverage, must be found in the plan documents and stated in clear
and express language. Wise v. El Paso Natural Gas, 986 F.2d 929(5th Cir.), cert. denied, 114 S. Ct. 196 (1993). See also Alday
v. Container Corp. of America, 906 F.2d 660, 665 (11th Cir. 1990)
("[A]ny retiree's right to lifetime medical benefits at a
particular cost can only be found if it is established under the
terms of the Erisa-governed benefit plan document"), cert.
denied, 498 U.S. 1026 (1991). The written terms of the plan
documents control and cannot be modified or superseded by the
employer's oral undertakings. See Hozier v. Midwest Fasteners,
Inc., 908 F.2d at 1163 (citing Musto v. American General Corp.,
861 F.2d 897, 910 (6th Cir. 1988), cert. denied, 490 U.S. 1020(1989) (the unambiguous written provisions of a plan must
control, and extrinsic evidence may not be introduced to vary the
express terms of a plan)) and Gordon v. Barnes Pumps Inc., 999
F.2d 133, 137 (6th Cir. 1993) (a basic principle of ERISA is that
a plan may not be modified or superseded by oral statements or
other extrinsic evidence).
To determine whether Sperry intended to confer vested
benefits upon its retirees in this case, we must analyze the
provisions of the retiree medical benefit plans at issue. Unisys
and the Sperry retirees agree that the Sperry summary plan
descriptions are the controlling documents that we must
interpret. The threshold issue in this case, whether the Sperry
plans were ambiguous, is a question of law. Taylor v.
Continental Group, 933 F.2d 1227, 1232 (3d Cir. 1991). We turn
now to the exact language of the plans in question and apply
these principles of law.
B.
Although Sperry maintained many different medical
benefit plans for its separate divisions or business groups, all
of these plans conveyed the same message: that post-retirement
medical benefits would be provided for life. There were slight
variations in the exact language utilized to convey this message.
For instance, the Sperry Univac plan contained the following
language:
When you retire . . . the comprehensive
medical expense benefits then in force for
you and your eligible dependents under this
plan will be continued for the rest of your
life.
SPD for Sperry Univac (A 2232). Another plan provided: ". . .
coverage continues for you for life and for your dependents while
they remain eligible . . . ." Sperry Medflex SPD (A 2749).
Unisys offered the same defense for all Sperry
divisions, namely that this lifetime language was subject to
reservation of rights clauses located elsewhere in the plans.
Although some reservation of rights clauses were more detailed
than others, each clause provided that the company could
terminate the plan "at any time" and "for any . . . reason." See
Sperry Medflex Plan, A 2750. Based on these provisions, the
retirees asserted that the retiree medical benefit plans were
ambiguous and that the ambiguity arose not merely from the
reservation of rights clauses themselves, but also from the
inconsistency between the reservation of rights clauses and the
plan's lifetime promises. According to the retirees, the plans
were ambiguous because they were susceptible to either of two
interpretations: the retirees' interpretation that the lifetime
language limited the scope of the reservations of rights, or the
company's interpretation that the reservation of rights limited
the lifetime language. If the court finds "but one reasonable
interpretation, then a fortiori there can be no ambiguity."
Curcio v. John Hancock Life Ins. Co., 33 F.3d 226, 231 (3d Cir.
1994). However, if the language is susceptible to more than one
reasonable interpretation, then it will be found to be ambiguous.
Id.9
In Schoonejongen v. Curtiss-Wright, supra, we reviewed
summary plan descriptions which stated in varying forms that
health insurance benefits would terminate "upon death" or when
"you cease to be a member of a class eligible for insurance . . .
[or] upon discontinuance of the group policy." 18 F.2d at 1036-
37. Some years later, Curtiss-Wright amended the language in its
summary plan description to provide that "[c]overage under this
plan will cease for retirees and their dependents upon the
termination of business operations of the facility from which
they retired." Id. at 1037. The affected retirees argued that
this reservation on its face referred only to employees and not
to retirees. Because the reservation did not unambiguously
reserve the right to terminate retiree benefits, the district
court held a trial to resolve the ambiguity. 18 F.3d at 1041.
9
. Although the district court originally agreed, at the
summary judgment stage, that the presence of lifetime language
and the reservation of the right to end the plans at any time
made the plans "internally inconsistent," and therefore,
ambiguous, it subsequently reversed this position in light of our
decision in Curtiss-Wright, 18 F.2d at 1042, which the court
interpreted as suggesting that "there is nothing inconsistent
about having lifetime language and a ROR in the same documents."
Based on the extrinsic evidence, the district court found that
the clause did apply to retirees. We affirmed the district
court's holding that Curtiss-Wright had reserved the right to
terminate retiree benefits, but held that Curtiss-Wright lacked a
formal amendment procedure in violation of section 402(b)(3) of
ERISA, 29 U.S.C. § 1102(b)(3), and therefore the amendment to the
plan was invalid. We responded to the retirees' argument that
the plan's description of the duration of benefits as ceasing
"upon death" created vested benefits:
It seems to us, however that our conclusion
[that Curtiss-Wright had a reserved right to
amend] is a complete answer to this argument.
Even if the plan contained unambiguous
assurances that all retirees would have
health insurance benefits for so long as
Curtiss-Wright maintained a post-retirement
health insurance program, the general
reserved right to amend the terms of the plan
in whole or in part would render the right of
any retiree or group of retirees terminable
by the adoption of a legally effective
amendment.
Curtiss-Wright, 18 F.3d at 1042 (emphasis added). Although the
Supreme Court reversed our conclusion that a formal amendment
procedure was lacking under section 402(b)(3) of ERISA, the
Court's decision is consistent with our conclusion that Curtiss-
Wright had expressly reserved the right to amend its plan to
effect a termination of benefits under the plan, as well as our
conclusion that "an important and proper purpose of reserving a
general right to amend is to permit the conditioning or cessation
of any participant's benefits, not vested by virtue of the
mandate of ERISA, in ways not originally foreseen in order to
meet unanticipated changes of circumstance." Id.10
We agree with the district court that the fact that the
Sperry plans used terms such as "lifetime" or "for life" to
describe the duration of retiree medical benefits, while at the
same time expressly reserving the company's right to terminate
the plans under which those benefits were provided, did not
render the plans "internally inconsistent" and therefore
ambiguous here.11 An employer who promises lifetime medical
benefits, while at the same time reserving the right to amend the
plan under which those benefits were provided, has informed plan
10
. In Curtiss-Wright, ___ U.S. ___, 115 S. Ct. 1223(1995), the issue of enforcing a reservation of rights clause
notwithstanding "lifetime" assurances was not before the Supreme
Court.
11
. We do not hold that a reservation of rights will always
prevail over a promise of benefits. Due to the abundance of
ERISA plans and the differing benefits these plans provide, each
case must be considered fact specific and the court must make its
determination of the benefits provided based on the language of
the particular plan it has been called upon to review.
For instance, in Curtiss-Wright, supra, the district
court required extrinsic evidence in order to determine that the
reservation clause in that case "was a general right to amend any
or all" provisions of the plan. 18 F.3d at 1041, 1042 n.6.
Thus, we held there that the reservation of rights clause
overcame or "trumped" the promise of lifetime benefits.
Thus, Curtiss-Wright contemplated situations in which a
reservation of rights in the plan documents are ambiguous.
Where, as here, however, the reservation of rights is broad and
unequivocal, it will prevail over a promise of lifetime benefits.
Thus we agree with the district court's conclusion that the
presence of lifetime language and the reservation of rights
clauses here did not necessarily render the Sperry retiree
medical benefit plans ambiguous.
participants of the time period during which they will be
eligible to receive benefits provided the plan continues to
exist. In this case, the Sperry retirees' eligibility for
benefits was qualified because it was subject to Unisys' reserved
right to terminate the plan under which those benefits were
provided.12
Other courts have reached the same conclusion,
recognizing that an employer can qualify the provision of
"lifetime" benefits by reserving the right to terminate the plan
under which those benefits are provided. Thus, in DeGeare v.
Alpha Portland Indus., Inc., 652 F. Supp. 946 (E.D. Mo. 1986),
aff'd, 837 F.2d 812 (8th Cir. 1988), vacated and remanded on
other grounds, 489 U.S. 1049 (1989), the court found that
seemingly inconsistent provisions, such as those permitting
modification of the plan and those indicating that benefits last
for life, must be construed to be harmonious. The court
specifically found "harmonious and reasonable the interpretation
12
. The Sperry retirees argued that "the Curtiss-Wright
panel did not consider the specific issue of whether an
unqualified statement of lifetime benefits can limit the scope of
a ROR." They maintain that the promise of lifetime benefits in
Curtiss-Wright was expressly qualified by the phrase "so long as
CW maintained a post-retirement health insurance program." See
18 F.3d at 1042. Here they suggest that the promise of lifetime
benefits were, in contrast, completely unqualified. See A 2276.
Thus, the Sperry retirees argue that the Curtiss-Wright case is
distinguishable from theirs.
We disagree. Here, too, the promise made to retirees
was a qualified one: the promise that retiree medical benefits
were for life provided the company chose not to terminate the
plans, pursuant to clauses which preserved the company's right to
end them at any time or for any reason.
of [the employer] of the written documents to provide lifetime
benefits subject to [the employer's] reserved right to amend."
652 F. Supp. at 961. See also Anderson v. Alpha Portland Indus.,
Inc., 836 F.2d 1512, 1518 (8th Cir. 1988), cert. denied, 489 U.S.
1051 (1989) (plaintiffs did not meet their burden of proving
vested welfare benefits where an employer promised to provide
welfare benefits "until death of retiree" where the employer had
expressly reserved the right to terminate or amend the plan);
Alday v. Container Corp. of America, 906 F.2d 660 (11th Cir.
1990), cert. denied, 498 U.S. 1026 (1991) (where summary plan
description also clearly provided that retiree health insurance
could be terminated or modified, terms of description were
controlling); Gable v. Sweetheart Cup Co., Inc., 35 F.3d 851, 856
(4th Cir. 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1442(1995) (company's express reservation of its right to modify or
terminate the participants' benefits is plainly inconsistent with
any alleged intent to vest those benefits).
Here Sperry, and later Unisys, stated clearly and
unequivocally in their summary plan descriptions that the company
reserved the right to "change or end [the plans]" "at any time"
and for "any . . . reason." Due to this broad and unambiguous
language, we hold that the district court did not err when it
concluded that the Sperry retiree medical benefit plans were not
internally inconsistent because they contained "lifetime"
language but also reserved the right to terminate benefits at any
time.
C.
Notwithstanding its legal conclusion based on Curtiss-
Wright that the Sperry plans unambiguously reserved Unisys' right
to terminate its retiree medical benefit plans, the district
court analyzed the extrinsic evidence in order to determine
whether the company intended the reservation of rights to apply
to the retirees' medical benefits.13 Given the retirees'
concerns that Curtiss-Wright did not foreclose the inquiry into
extrinsic evidence, and because a trial had already been held in
the case, the district court made a factual determination that
the reservation of rights clause was intended to apply to the
retirees' medical benefits, as well as a legal determination that
the retirees had not sustained their burden of proving that the
employer intended to vest retiree benefits.
The district court analyzed, first, the extrinsic
evidence with respect to the intent of the plan sponsor, Unisys.
Although the retirees argued that when the company used the term
"lifetime," its true intent was to vest benefits, the district
court found that the use of the word "lifetime" did not manifest
an intent on the part of the plan sponsor to create "vested"
benefits, because the evidence did not support this argument.
The district court concluded that because the company had used
13
. In Alexander v. Primerica, 967 F.2d at 93, we held that
where there is an ambiguous ERISA plan, a court may consider,
inter alia, the intent of the plan's sponsor, the reasonable
understanding of the beneficiaries, and past practice in
interpreting the plan. Accordingly, the district court heard the
retirees' evidence presented on each of these subjects.
the word "vested" in its medical plan for its top level Sperry
executives, but not in the rank and file plans, the company must
have intended not to vest the rank and file benefits. Rather, as
the language of the executive plan revealed, when the company
wanted to create vested benefits, it knew how to do so.14
The district court also found that the retirees'
assertion that the reservation of rights, which did not facially
distinguish between actives and retirees, applied only to actives
was not supported by a preponderance of the evidence. (A 2278-
79). While the court found that the company had "locked in"
retirees' benefits in practice in the past, it was "not
persuaded" that the company had embraced the "active/retiree"
distinction as a matter of actual policy due to the fact that not
a single document corroborated the testimony that an
active/retiree distinction was in force; the distinction was not
incorporated into the reservation of rights or summary plan
descriptions or reduced to writing as an official policy. (A
2278-80). The district court found significant the facts that
the alleged policy of restricting the RORs to active employees
had never been formally discussed by the Board of Directors, and
that a board resolution did not exist confirming the creation of
this policy. Id. We agree with the district court that all of
14
. The district court further found that the retirees had
conceded, throughout trial, that an active employee's benefits
could always be amended or terminated even though lifetime
language was similarly used to describe that benefit. This
concession suggested to the court that the retirees implicitly
recognized that "lifetime" was not synonymous with "vested." (A
2278).
these factors militate against the idea that Unisys intended to
restrict the application of the RORs to active employees.
Numerous retirees testified at trial that they
understood that their benefits could not be reduced after
retirement. Indeed, the district court found that there was "no
question that the defendant routinely spoke of the medical
benefits as continuing ``for life.'" (A 2281). The district
court specifically found that "this message was conveyed time and
time again through informal communications that were sent out to
retirees, and by oral statements that were made to these
individuals both at private exist interviews and in group
retirement sessions. Id. Nonetheless, the district court
concluded that the retirees' reasonable understanding of their
benefits must be limited to the reasonable understanding of the
summary plan descriptions or plan documents, due to our strong
precedent which precludes informal amendments to ERISA benefit
plans. See, e.g., Hozier v. Midwest Fasteners, Inc., 908 F.2d at
1164; Haberen v. Kaupp Vascular Surgeons Ltd. Defined Benefit
Pension Program, 24 F.3d 1491 (3d Cir. 1994) (and cases cited
therein).
Finally, the retirees' submitted evidence of past
practice which demonstrated that Sperry had never reduced retiree
medical benefits prior to this litigation. For example, when the
Medflex plan was implemented, it applied to future retirees only.
The retirees argued that this evidence established the existence
of a policy pursuant to which benefits were "locked-in" upon
retirement. The district court found that "merely because the
company had never chosen to exercise its reservations of rights
prior to this litigation, did not mean that the company had
waived its right to terminate the plans pursuant to these broad
and unequivocal reservation of rights clauses." (A 2283) (citing
Alexander, 967 F.2d at 93 (rejecting the defendant's argument
that the company's past practice of changing benefits rendered
the amendment clause unambiguous); and Howe v. Varity Corp., 896
F.2d at 1116 ("merely because defendants chose to exempt retirees
from plan changes in the past does not mean that defendants
considered themselves forever bound to do so")).
Because the record before us firmly supports all of
these findings, we cannot say that they are clearly erroneous.15
Therefore, the district court did not err in concluding that the
reservation of rights applied to the Sperry retirees' medical
benefits and that the retirees' medical benefits were not
intended by the company to be vested based upon this evidence.16
15
. We do not understand the Sperry retirees to dispute any
of the findings of fact upon which the district court relied in
concluding that the alleged policy of applying the reservation of
rights clause only to active employees was not supported by the
evidence or the court's conclusion that the retiree medical
benefits were not vested. Rather, the retirees dispute the
inferences from or the weight accorded these findings.
16
. We reject the Sperry retirees' argument that the
district court erred when it analyzed the extrinsic evidence
because the court gave "too much weight to the subjective
intentions of some company executives that were not disclosed to
the employees, while ignoring the uncontradicted evidence of what
the company said in explaining the plans to its employees, how
the company applied the plans in practice and what the company
knew its employees understood the plans to mean." (Appellants'
brief at p. 37).
III.
The Sperry retirees additionally contend that the
district court erred in failing to sustain the separate contract
claims of the "early retirees" or "VRIF" ("Voluntary Reduction in
Force") retirees. The VRIFs asserted a claim separate from that
of the regular retirees: that the company offered them certain
benefits to induce them to retire which they accepted by retiring
earlier than they would have. They contend that this offer and
their acceptance formed a binding contract, independent of the
contract rights asserted by the other retirees founded upon the
basic plans. See Sprague v. General Motors Corp., 768 F. Supp.
605 (E.D. Mich. 1991).17
(..continued)
In Taylor v. Continental Group, 933 F.2d 1227, 1233 (3d
Cir. 1991), we recognized that non-bargained ERISA plans (in that
case, severance plans) raise special interpretational problems.
To the extent that the retirees relied on extrinsic evidence of
"what the company said in explaining the plans to its employees,"
and "how the plans were applied in practice," this evidence
cannot be used to contradict the unambiguous written terms of an
ERISA plan. Reliance on this evidence conflicts with Congress'
intent that plan documents and SPDs exclusively govern an
employer's obligations with respect to an ERISA plan. Thus, the
district court did not err in its analysis of this extrinsic
evidence here.
Further, while the informal statements made by the
company that the benefits would continue for "life" do not alter
the contractual analysis, as the district court found, "given the
consistency and frequency that such communications were made,
they would appear to support the retirees' other claims, such as
their BOFD [Breach of Fiduciary Duty] claim." (A 2282). See
appeal No. 94-1875.
17
. The district court rejected this claim because the
court found that the VRIF retirees were in no different position
with respect to the contract claim than the other retirees:
Although it is true that the VRIFs retired early,
foregoing future salary and pension accruals in order to secure
the retiree medical benefits under their existing plans, the
plans pursuant to which the VRIFs received retiree medical
benefits contained clear and unequivocal reservation of rights
clauses that permitted the company to end the plans at any time.
See, e.g., the 1988 VRIF offering document advising the
prospective participant of the entitlement to "coverage under the
Post-Retirement Medical Plan in effect at the time your first
[pension] check becomes payable." (A 4395). Medflex, the plan
pursuant to which the VRIF retiree medical coverage was to be
provided, contained an unambiguous reservation of rights
clause.18 (A 3011). While the VRIFs point out that the offering
(..continued)
. . . [F]ollowing closing arguments,
plaintiffs made a belated request in an
attempt to distinguish a small group of class
members from the class of Sperry regular
retirees. These were individuals who retired
under a voluntary reduction in force program
("VRIF"), not a VERIP. (See Supplemental
Briefs, filed May 27, 1994.) The court
allowed the parties to take some sample
depositions and to brief the issue, in order
to discover whether this small group did have
any "special" claims. The court, however,
finds that the VRIF individuals are in no
different position than any of the other
Sperry plaintiffs. Rather, any differences
that do exist only go to bolster their
[breach of fiduciary duty] claim.
(A 2264 n. 54).
18
. Those employees who retired pursuant to a 1984 VRIF
were likewise eligible to receive only those medical benefits
under "the current health insurance plans" whose SPDs contained
unambiguous RORs. (A 3029).
materials for their incentive plans promised the incentive
benefits without any reference to a reserved right by the company
to amend or terminate the plans, we find that this is not
dispositive of their claim because the benefits which the VRIFs
were to receive were described in summary plan descriptions
containing unambiguous RORs. Consequently, the district court
did not err in rejecting the VRIFs' separate bilateral contract
claim.
IV.
We turn to the retirees' final argument that the
district court erred in concluding that the estoppel claims of
all of the regular retirees failed as a matter of law and erred
in refusing to reconsider its grant of summary judgment on that
claim. In re Unisys, 837 F. Supp. 670, 680-81 (E.D. Pa. 1993).
An ERISA beneficiary may recover benefits under an
equitable estoppel theory upon establishing a material
misrepresentation, reasonable and detrimental reliance upon the
representation, and extraordinary circumstances. Curcio v. John
Hancock Mutual Life Insurance Co., supra, 33 F.3d at 235; Smith
v. Hartford Ins. Croup, 6 F.3d 131, 137 (3d Cir. 1993).19 The
retirees contend that they can establish these elements.20
19
. We reject Unisys' threshold argument that an estoppel
claim is not cognizable under ERISA after the Supreme Court's
decision in Mertens v. Hewitt Assoc., ___ U.S. ___, 113 S. Ct.
2063 (1993). We have recently reaffirmed the viability of this
claim by our decisions in Curcio, supra, and Smith, supra.20
. Regarding the requirement of a material
misrepresentation, the district court found that the company had
While we acknowledge that many retirees may have relied
to their detriment on their interpretation of the summary plan
descriptions as promising vested or lifetime benefits, we
nonetheless must reject their estoppel claim. Due to the
unambiguous reservation of rights clauses in the summary plan
descriptions by which Unisys could terminate its retiree medical
benefit plans, the regular retirees cannot establish "reasonable"
detrimental reliance based on an interpretation that the SPDs
promised vested benefits. The retirees' interpretation of the
plans as providing lifetime benefits is not reasonable as a
matter of law because it cannot be reconciled with the
unqualified reservation of rights clauses in the plans.
Our sister courts of appeals have also rejected
estoppel claims because of the presence of unambiguous
reservation of rights clauses on the basis that a participant's
reliance on employer representations regarding benefits may never
be "reasonable" where the participant is in possession of a
written document notifying him of the conditional nature of such
benefits. See, e.g., Gordon v. Barnes Pumps, Inc., 999 F.2d 133,
137 (6th Cir. 1993) ("[a]ll plan participants knew or should have
(..continued)
misinformed the retirees regarding the duration of their medical
benefits coverage and that this misrepresentation was material.
Indeed, the district court found that the company engaged in a
"systematic campaign of confusion" which led employees to believe
that their benefits were to continue for life. The retirees
contend that the record clearly establishes that many of the
retirees, including the early retirees or "VRIFs", relied to
their detriment on the company's misrepresentations because many
employees accelerated their retirement and gave up salary and
pension accruals they would have gained if they had continued to
work.
known from the express terms of the Pullman plan that benefits
could be altered at any time"). Accord Alday v. Container Corp.
of America, 906 F.2d 666 (11th Cir. 1990) (promissory estoppel
did not bar employer from modifying terms of retiree medical
insurance plans despite participant's claim that employer induced
him into believing that plan's terms would not change; plan
unambiguously stated that the employer reserved the right to
modify or terminate the plan), cert. denied, 498 U.S. 1026(1991).
While our decisions have not required an express
finding of plan ambiguity as an element for establishing an
estoppel claim, we have required that reliance be reasonable.
Because our decisions require that any detrimental reliance on
plan language also be "reasonable," our finding that the RORs are
unambiguous undercuts the reasonableness of any detrimental
reliance by the retirees. Accordingly, we hold that the district
court did not err in concluding, on summary judgment, that the
retirees' estoppel claim failed as a matter of law.
V.
For the foregoing reasons, we will affirm the judgment
of the district court.