International Ass'n v. Masonite Corp.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 96-60571
__________________
INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS,
WOODWORKERS DIVISION, AFL-CIO; WOODWORKERS LOCAL LODGE W443,
INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, AFL-
CIO; W.R. RISER, on behalf of himself and all others similarly
situated; LESTER MCCULLUM, on behalf of himself and all others
similarly situated; LEWIS H. TINER, on behalf of himself and all
others similarly situated; EMMETT M. NAPIER, on behalf of himself
and all others similarly situated; J.C. WALDRUP, on behalf of
himself and all others similarly situated; EARNEST WEEMS, JR., on
behalf of himself and all others similarly situated; ROBERT J.
MYERS, on behalf of himself and all others similarly situated; KING
G. MCMILLAN, on behalf of himself and all others similarly
situated; ALBERT JAMES PARKER, SR., on behalf of himself and all
others similarly situated; JAMES W. JONES, on behalf of himself and
all others similarly situated; ROBERT J. POLSON, on behalf of
himself and all others similarly situated; MILFORD L. GRAHAM, on
behalf of himself and all others similarly situated; J.W. LEWIS, on
behalf of himself and all others similarly situated; E.U. SIMS, on
behalf of himself and all others similarly situated,
Plaintiffs-Appellants,
versus
MASONITE CORPORATION, a division of International Paper
Company,
Defendant-Appellee.
______________________________________________
Appeal from the United States District Court for the
Southern District of Mississippi
______________________________________________
September 4, 1997
Before GARWOOD, BENAVIDES, and STEWART, Circuit Judges.
BENAVIDES, Circuit Judge:
In this appeal, certain retired employees of Masonite
Corporation (“Masonite”) challenge the district court’s
determination that the collective bargaining agreements (“CBAs”) in
effect at the time they retired did not confer vested lifetime
health insurance benefits. The district court concluded that the
retired employees’ entitlement to health insurance benefits expired
when the CBAs under which they retired did.
Because we conclude that the CBAs at issue are ambiguous, we
reverse and remand for further proceedings.
I.
Before 1993, appellants, Masonite employees who retired after
1972, had received uninterrupted health insurance coverage at the
company’s expense at or above the level provided by the CBAs in
effect at the time they retired. On May 1, 1993, however, Masonite
announced unilateral changes to the health insurance benefits of
its retired employees, decreasing the percentage of medical costs
reimbursed from 80% to 65%, increasing the yearly deductible from
$100 to $300, making some services reimbursable on a scheduled
rather than an actual cost basis, and requiring pre-certification
for all hospitalization. The changes apply to those employees who
retired before January 16, 1993. The benefits of already-retired
employees were not on the table during contract negotiations
between the union and Masonite in 1992, which resulted in a new CBA
effective January 16, 1993.
Masonite also announced that it might in the future require
retired employees to pay premiums to maintain their health
2
insurance coverage. In fact, the re-enrollment form Masonite sent
to retired employees with the announced changes contained an
authorization clause, which, if signed, would authorize the company
to deduct medical insurance premiums from retiree pension payments,
“if applicable.” Only a handful of retired employees complied.
Masonite has not terminated the benefits of any retired employees
for failure to sign the authorization form, and it continues to pay
the retired employees’ health insurance premiums.
In response to these actions, retired Masonite employees filed
this suit in federal district court under Section 301(a) of the
Labor Management Relations Act (“LMRA”), 29 U.S.C. § 185(a), and
under the Employee Retirement Income Security Act (“ERISA”), 29
U.S.C. §§ 1132, 1140. The district court certified a plaintiff
class consisting of all hourly employees of Masonite who retired
between December 1, 1973, and January 15, 1993, and who, under the
CBAs in effect at the time of their retirement, were eligible for
the continuation of their health insurance benefits. The class
sought declaratory and injunctive relief, monetary damages, and
attorneys’ fees.
In the district court, the parties clashed over three aspects
of the retired employees’ health insurance benefits: duration,
cost, and level of benefits. The retired employees argued that
their benefits were vested for each retired employee’s lifetime,
the cost to be borne by the company, and the level of benefits to
be at least that provided in 1987. The company argued that the
retired employees’ benefits were guaranteed only for the duration
3
of the CBA in effect when they retired, with no guarantee that the
company would pay for those benefits, and with no minimum level of
benefits ensured. The parties filed cross-motions for summary
judgment based on stipulated facts and exhibits, and other summary
judgment evidence. In its order granting defendant’s motion for
summary judgment, the district court addressed only whether the
retirees’ benefits were vested and concluded that any entitlement
to retirement benefits expired when the relevant CBA did. Under
the district court’s broad holding, not only can Masonite reduce
the retired employees’ benefits, which it has done, it could also
require retirees to contribute premiums, which it has threatened to
do, and could eliminate their health insurance benefits altogether.
Plaintiffs timely filed a notice of appeal.
DISCUSSION
We review the district court’s grant of summary judgment de
novo. Gunaca v. State of Texas, 65 F.3d 467, 469 (5th Cir. 1995).
Likewise, the district court’s interpretation of a contract is
subject to de novo review. L&A Contracting Co. v. Southern
Concrete Servs., Inc., 17 F.3d 106, 109 (5th Cir. 1994)(citation
omitted).
ERISA divides employee benefit plans into two categories:
welfare benefit plans and pension plans. Compare 29 U.S.C. §
1002(1) with id. § 1002(2)(A). Unlike pension benefits, which are
subject to stringent vesting requirements under ERISA, welfare
benefits, such as health care insurance, are vested only if so
4
provided by contract. 29 U.S.C. § 1051(1) (providing that ERISA’s
vesting provisions do not apply to employee welfare benefit plans);
see Wise v. El Paso Natural Gas Co., 986 F.2d 929, 934-35 (5th Cir.
1993); Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1516
(8th Cir. 1988); see also Curtiss-Wright Corp. v. Schoonejongen,
115 S. Ct. 1223, 1228 (1995) (“Nor does ERISA establish any
minimum participation, vesting, or funding requirements for welfare
plans as it does for pension plans.”) (citation omitted). Thus,
whether a CBA vests health insurance benefits in retired employees
is a question of contractual interpretation. United Paperworkers
Int’l Union v. Champion Int’l Corp., 908 F.2d 1252, 1261 (5th Cir.
1990); Anderson, 836 F.2d at 1516. In making this determination,
the core issue is whether the parties intended to vest retiree
health insurance benefits or whether they intended to tie those
benefits to the CBA in effect at the time the claimants retired.
See Keffer v. H.K. Porter Co., 872 F.2d 60, 62 (4th Cir. 1989);
Anderson, 836 F.2d at 1516 (UFCW Local Union No. 150-A v. Dubuque
Packing Co., 756 F.2d 66, 69 (8th Cir. 1985)). Retired employees
bear the burden of proving that their health insurance benefits are
vested. Anderson, 836 F.2d at 1517; Dubuque, 756 F.2d at 70.
The interpretation of collective bargaining agreements is
governed by federal law. Paperworkers, 908 F.2d at 1256.
Nonetheless, the court may draw upon state rules of contractual
interpretation to the extent that those rules are “consistent with
federal labor policies.” Id. (quoting International Union, AUW v.
Yard-Man, Inc., 716 F.2d 1476, 1479 (6th Cir. 1983)) (other
5
citations omitted). Even when no identifiable federal labor policy
favors or disfavors a particular interpretation, the rules of
contractual interpretation are still applied with “flexibility . .
. in the context of labor contracts.” Id.
In Yard-Man, the Sixth Circuit suggested an inference that
retiree benefits are vested benefits. 716 F.2d at 1482. In
concluding that the parties intended to vest retiree benefits, the
court explained:
[R]etiree benefits are in a sense “status” benefits
which, as such, carry with them an inference that they
continue so long as the prerequisite status is
maintained. Thus, when the parties contract for benefits
which accrue on the achievement of retiree status, there
is an inference that the parties likely intended those
benefits to continue so long as the beneficiary remains
a retiree.
Id. In Paperworkers, however, this circuit questioned the
inference. Paperworkers, 908 F.2d at 1261 n.12. Nevertheless, we
recognized that there is also no presumption that retiree health
insurance benefits conferred by a CBA are coterminous with that
CBA. See id. at 1261.1 As the Supreme Court explained in Litton
Financial Printing v. NLRB:
[C]ontractual obligations will cease, in the ordinary
course, upon termination of the bargaining agreement.
Exceptions are determined by contract interpretation.
1
This court noted in Paperworkers that “the fact that retirees
have no voice in negotiating a new collective bargaining agreement”
may be considered by the district court as “some evidence of
intent” to vest retirement benefits. Paperworkers, 908 F.2d at
1261 n.12. Retired employees “have no voice” because even if the
union wanted to force Masonite into negotiations on behalf of
already-retired employees, it would be powerless to do so under the
Supreme Court’s holding in Allied Chemical & Alkali Workers Local
Union No. 1 v. Pittsburg Plate Glass Co., Chem. Div., 404 U.S. 157,
92 S. Ct. 383 (1971).
6
Rights which accrued or vested under the agreement will,
as a general rule, survive termination of the agreement.
501 U.S. 190, 207, 111 S. Ct. 2215, 2226 (1991).
The retired employees argue that this court’s decision in NLRB
v. Pinkston-Hollar Construction Services, Inc., requires that this
court find that their benefits were vested. 954 F.2d 306, 310 (5th
Cir. 1992). In particular, they rely on the court’s conclusion
that “pension, health and welfare plans are considered terms and
conditions of employment that survive expiration of the agreement.”
954 F.2d at 310 (citing Hinson d/b/a Hen House Mkt. No. 3, 175
N.L.R.B. 596 (1969), enforced sub nom. Hinson v. NLRB, 428 F.2d
133, 136-37 (8th Cir. 1970)). This sentence, however, must not be
read in a vacuum. Pinkston-Hollar involved whether a company’s
unilateral withdrawal of welfare benefits from active employees
after the expiration of the CBA violated the company’s bargaining
obligation under the National Labor Relations Act, 29 U.S.C. §§
158(a)(1), (5). Pinkston-Hollar, therefore, sheds little light on
the duration of retiree benefits, which are not subject to
mandatory collective bargaining. See Pittsburg Plate Glass, 404
U.S. 157, 92 S. Ct. 383. Moreover, literal application of the
Pinkston-Hollar language would be especially questionable in light
of the skepticism expressed in Paperworkers about an inference that
retiree benefits are vested. 908 F.2d at 1261 n.12.
Without the benefit of this inference, but bearing in mind the
flexibility accorded in the interpretation of labor contracts, we
turn to the CBAs and other documents at issue in this case. During
the relevant period (1973-1993), Masonite, the union, and its local
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entered into five CBAs. Each CBA incorporated an Insurance
Benefits Agreement (“IBA”). The retired employees argue that the
following provision of each IBA guaranteed health insurance
benefits until their deaths for them and their dependents:
Employees retiring at age 62 or later . . . will be
entitled to comprehensive medical expense insurance
benefits for themselves and their covered dependents
until the death of the retired employee. (emphasis added)
According to the retired employees, the phrase “until the death of
the retired employee” manifests the parties’ intent to create
vested lifetime health insurance benefits for those retiring under
each CBA.
The company argues that this phrase serves to limit the
company’s obligation to covered dependents within the duration of
the CBA. In the company’s view, this phrase simply ensures that if
a retired employee dies during the duration of the CBA, the covered
dependents’ benefits will cease upon the retired employee’s death.
In support of its position, the company relies on the Eighth
Circuit’s decision in Anderson v. Alpha Portland Industries, Inc.,
in which the court construed a similar phrase to be a limiting
rather than a vesting phrase. 836 F.2d at 1518. In Anderson, the
CBA at issue contained a clause stating that “[f]or future
retirees, Company will pay full costs of all group insurance for
them and their dependents until death of retiree.” Id. The court
noted that although the phrase “until death of retiree” alone was
“highly probative of intent to vest benefits,” extrinsic evidence
demonstrated that this phrase memorialized the company’s specific
rejection of a union proposal to continue the benefits of the
8
retiree’s dependents after the death of the retired employee rather
than demonstrating an intent to vest the retirees benefits. Id.
Masonite does not point to similar extrinsic evidence indicating
that the phrase was intended to be a limiting factor, although the
contract language, like that in Anderson, appears to be “highly
probative of an intent to vest benefits.”
Another provision of the IBAs supports the construction of the
“until death” clause proffered by the retired employees. The
agreements make the death of an active employee a temporal
milestone for cessation of dependents’ benefits, but do so in a
grammatical configuration quite different from the retiree benefits
clause:
(h) The spouse and dependent children of an active
employee who dies while insured under this program and
benefits will be insured under the plan until the end of
the month following the month in which the employee’s
death occurred.
This provision suggests that when the union and Masonite intended
to make an employee’s death a temporal milestone, they did so
unambiguously.
On the other hand, each IBA provides that “its term is
coincident with that of the [CBA].” According to Masonite, the use
of “coincident” in the IBAs makes clear that the retired employees’
right to health insurance benefits expired when the CBA under which
they retired did. The clause making the term of the IBAs
coincident with the term of the CBAs, however, is not specific to
retiree benefits. Compare Murphy v. Keystone Steel & Wire Co., 61
F.3d 560, 566 (7th Cir. 1995) (“The Plan states that retiree
9
benefits terminate ‘upon the date the Plan is terminated or amended
to terminate the Retiree’s [or his dependent’s] coverage.’”); see
also Yard-Man, 716 F.2d 1481-82 (noting the absence of any
durational provision specific to retired employees). Instead, the
IBAs detail the benefits of both active and retired employees.
While the duration of any benefits that are subject to
renegotiation may be tied to the duration of the CBAs, if the
“until death” clause reflects the parties’ intent that retiree
benefits are vested, then the termination of the IBAs would not
affect those vested benefits. See Litton Fin. Printing Div., 501
U.S. at 207, 111 S. Ct. at 2226.
Masonite further relies on the reservation-of-rights clause in
its ERISA Plan document in support of its argument that the
retirees’ benefits were not vested. The reservation-of-rights
clause provides that “Masonite Corporation shall have the right to
terminate, suspend, withdraw, amend or modify this Plan in whole or
in part at any time.” The company claims that this Plan provision
empowers it to terminate retiree benefits altogether.2 In the
absence of the CBAs, the Plan’s reservation-of-rights clause
granting the company the right to amend or terminate the Plan might
2
A clause in the Insurance Benefits Schedule, which is also
incorporated into the CBA, provides that the Insurance Benefits
Schedule is “subject to the terms and provisions of the Insurance
Policy issued by the Insurance Company . . . .” Because the Plan
was self-insured, the company argues, the Plan documents are the
“insurance policy.” The retired employees dispute that “insurance
policy” can be construed to mean “self-insured Plan.” Also, as the
retired employees point out, the company’s representative conceded
in his deposition that this clause did not give the company the
right to eliminate bargained-for benefits.
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well end the inquiry in the company’s favor. See, e.g., Wise, 986
F.2d at 934-35; In re Unisys Corp. Retiree Med. Ben. “ERISA”
Litig., 58 F.3d 896, 902-05 (3d Cir. 1995); Gable v. Sweetheart Cup
Co., 35 F.3d 851, 856 (4th Cir. 1994); Alday v. Container Corp.,
906 F.2d 660, 665 (11th Cir. 1990). A reservation-of-rights clause
in a plan document, however, cannot vitiate contractually vested or
bargained-for rights. To conclude otherwise would allow the
company to take away bargained-for rights unilaterally.3 Armistead
v. Vernitron Corp., 944 F.2d 1287, 1297 (6th Cir. 1991); cf.
Paperworkers, 908 F.2d at 1261.
In sum, we find that the phrase “until death” can be construed
either as a limiting or a right-granting provision. See Stewart v.
KHD Deutz Corp., 980 F.2d 698, 703-04 (11th Cir. 1993). Because
the agreements are ambiguous, the district court should have
considered extrinsic evidence of intent. Paperworkers, 908 F.2d at
1256. If the agreements grant vested retiree benefits, then
neither the fact that the IBA is coincident with the CBA nor the
reservation-of-rights clause in the Plan would divest retired
employees of those benefits. The district court’s decision that
the retired employees’ rights to benefits expired with the CBAs in
effect at the time they retired pretermitted its analysis of any
extrinsic evidence of the parties’ intent as well as any
consideration of cost-of-benefits and level-of-benefits issues.
3
The retired employees also complain of the district court’s
“heavy reliance” on a provision of the Summary Plan Description
(SPD), which defines “plan.” As the company points out, however,
in the final analysis, the district court did not rely on this
provision.
11
Accordingly, we remand to allow the district court an opportunity
to consider extrinsic evidence of the parties’ intent. See
Paperworkers, 908 F.2d at 1257-61; Stewart, 980 F.2d at 704.
Breach of Fiduciary Duty
The retirees also appeal the district court’s grant of summary
judgment to the company on the plaintiffs’ claim that Masonite
breached its fiduciary duty as an ERISA plan administrator. In the
district court, Masonite argued summary judgment was proper as to
all claims based on its contention that that there was no summary
judgment evidence that the retirees had a lifetime vested right to
health insurance benefits. Apparently assuming that it will
prevail on the vesting issue, Masonite argues on appeal that it is
entitled to summary judgment on the fiduciary duty claims because
the retirees’ benefits were not vested.4 Because the vesting issue
is to be reconsidered on remand, we reverse and remand the
retirees’ breach of fiduciary duty claims as well.
4
Masonite cites two cases which suggest that whether an
employer, which also acts as plan sponsor, has breached its
fiduciary duty depends on whether the benefits with which it
interfered were vested. See Izzarelli v. Rexene Prods. Co., 24
F.3d 1506, 1524 (5th Cir. 1994) (holding that an employer does not
act as a fiduciary in amending or terminating a plan, “provided
that the benefits reduced or eliminated are not accrued or vested
at the time, and that the amendment does not otherwise violate
ERISA or the express terms of the plan.”)(citation
omitted)(emphasis added); John Morrell & Co. v. UFCW Int’l Union,
37 F.3d 1302, 1308 (8th Cir. 1994)(“ERISA does not bar an employer
that is also a fiduciary from exercising its business judgment to
modify non-vested welfare benefits.”)(citation omitted)(emphasis
added).
12
Given Masonite’s argument on appeal, we take no position as to
whether the Supreme Court’s conclusion that an employer does not
act as a fiduciary when amending or terminating a benefits plan,
see Curtiss-Wright, 115 S. Ct. at 1228, applies where vested
benefits are terminated or amended unilaterally by an employer.5
5
The retirees argue at length that irrespective of the vesting
issue, their breach of fiduciary duty claims should be allowed
under the Supreme Court’s analysis in Varity Corp. v. Howe, 116 S.
Ct. 1065 (1996). In Varity, the Court held that an employer, which
also served as an ERISA plan administrator, breached its fiduciary
duty when it induced plan beneficiaries by “deliberate deception”
to “switch employers and thereby voluntarily release [the company]
from its obligation to provide them benefits . . . .” Id. at 1069.
On the summary judgment record in this case, there is no
genuine issue of material fact as to a Varity-type breach of
fiduciary duty. The retirees attempt to create an issue of fact by
pointing to Masonite’s statement that its new Plan was “an effort
to reduce ‘the sky rocketing cost of quality health care.’” This
statement, far from being deceptive, is literally true. The
retirees also point to the re-enrollment form sent to retirees for
their signatures, which contained language authorizing the company
to deduct health insurance premiums from the retirees’ pension
checks, “if applicable.” They argue that the Hobson’s choice posed
by the re-enrollment forms evidences Masonite’s attempt to improve
its own financial position at the retirees’ expense. Even if true,
that fact does not create a fact issue under Varity absent
deception. See Curtiss-Wright, 115 S. Ct. at 1228. Whether the
company is in fact entitled to require retiree premium contribution
is a separate matter that may be resolved by the district court on
remand. In sum, the retirees’ reliance on Varity is misplaced.
The retirees also complain that the company did not present
the retiree benefits issue for collective bargaining. The simple
answer is that the company was not required to do so. See
Pittsburg Plate Glass, 404 U.S. at 176-82, 92 S. Ct. at 396-99.
13
II.
For these reasons, we reverse and remand to allow the district
court an opportunity to consider extrinsic evidence regarding
whether the parties intended to vest retiree health insurance
benefits, and if so, at what level and at whose expense. Should
the district court determine that there is an issue of fact on the
vesting issue, it should also reconsider whether summary judgment
on the fiduciary duty claims is appropriate.
14