Machinists District v. Pabst Brewing

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-4076
Frank M. Rosetto, et al., individually
and as representatives of a class of similarly
situated persons,
Plaintiffs-Appellants,
v.
Pabst Brewing Company, Inc.,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 96-C-1086--William E. Callahan, Jr., Magistrate Judge.
Argued May 18, 2000--Decided June 29, 2000
Before Posner, Chief Judge, and Diane P. Wood and
Williams, Circuit Judges.
Posner, Chief Judge. This appeal from the grant
of summary judgment in favor of the defendant
requires us to reconsider the much-litigated
issue of when a right to health benefits that is
granted to retired workers by a collective
bargaining agreement (or an ERISA plan, but that
is not this case) survives the termination of the
agreement. See, e.g., Bidlack v. Wheelabrator
Corp., 993 F.2d 603 (7th Cir. 1993) (en banc);
Pabst Brewing Co. v. Corrao, 161 F.3d 434 (7th
Cir. 1998); Frahm v. Equitable Life Assurance
Society, 137 F.3d 955 (7th Cir. 1998); Diehl v.
Twin Disc, Inc., 102 F.3d 301 (7th Cir. 1996);
Murphy v. Keystone Steel & Wire Co., 61 F.3d 560(7th Cir. 1995); Maurer v. Joy Technologies,
Inc., No. 98-3964, 2000 WL 572453 (6th Cir. May
12, 2000); Int’l Union, United Automobile,
Aerospace & Agricultural Implement Workers v.
Skinner Engine Co., 188 F.3d 130 (3d Cir. 1999);
Joyce v. Curtiss-Wright Corp., 171 F.3d 130 (2d
Cir. 1999); Int’l Ass’n of Machinists & Aerospace
Workers v. Masonite Corp., 122 F.3d 228 (5th Cir.
1997). The issue must be decided as a matter of
federal common law developed under the authority
of section 301 of the Taft-Hartley Act, 29 U.S.C.
sec. 185, as interpreted in Textile Workers Union
v. Lincoln Mills, 353 U.S. 448, 456-57 (1957);
see also United Steelworkers of America v.
Rawson, 495 U.S. 362, 368 (1990); In re Bluffton
Casting Corp., 186 F.3d 857, 862 (7th Cir. 1999),
or, in the case of an ERISA plan, under the
authority of ERISA. E.g., Pilot Life Ins. Co. v.
Dedeaux, 481 U.S. 41, 55-56 (1987); Fox Valley &
Vicinity Construction Workers Pension Fund v.
Brown, 897 F.2d 275, 281 (7th Cir. 1990) (en
banc); Trustmark Life Ins. Co. v. University of
Chicago Hospitals, 207 F.3d 876, 881 (7th Cir.
2000).
The plaintiffs complain not only about the grant
of summary judgment in favor of the defendant but
also about the district court’s denial of their
discovery motion. The latter complaint has no
possible merit. The motion was filed two months
after the date set by the court for the
completion of discovery. The plaintiffs gave (and
give) no excuse for their tardiness, and so have
no grounds for complaining about the district
court’s welcome effort to expedite the litigation
and spare the parties the expense of protracted
discovery, the bane of modern litigation.
The plaintiff class consists of some 45 retired
machinists formerly employed at Pabst’s brewery
in Milwaukee, plus their spouses and dependents.
The members of the class received health benefits
under successive collective bargaining agreements
between Pabst and the machinists’ union until
1995, when the last such agreement expired (Pabst
closed the brewery the following year). They
claim that the agreements gave them a vested
right to such benefits. The agreements contain
three provisions, essentially unchanged from
agreement to agreement, conferring benefits on
retired employees and their dependents, that bear
on this case: (a) Blue Cross and Blue Shield
medigap insurance for retirees enrolled in
Medicare, plus a Blue Cross-Blue Shield
prescription drug program except insofar as the
retiree "may become eligible [for a similar
benefit] as a result of any future hospital-
surgical legislation"; (b) for those retirees not
enrolled in Medicare, the same coverage as for
active employees; (c) "the coverage described in
subsections (a) and (b) shall continue for the
covered dependents of a deceased retired employee
to the end of the sixth month following the month
in which death occurs."
Pabst argues that it is clear from these
provisions that they are effective only during
the term of the collective bargaining agreement
that contains them. If this is right--if someone
who read these provisions without knowing
anything about their background or real-world
context would say, "Yes, it sure looks as if the
provisions are in effect only for the term of the
agreement in which they appear"--then Pabst is
off the hook as a matter of law (that is, the
case would not reach the jury) unless the
plaintiffs can adduce (1) objective evidence of
(2) a latent, or, as it is sometimes called, an
extrinsic, ambiguity. E.g., PMC, Inc. v. Sherwin-
Williams Co., 151 F.3d 610, 614-15 (7th Cir.
1998); Mathews v. Sears Pension Plan, 144 F.3d
461, 466-67 (7th Cir. 1998); Pierce v. Atchison,
Topeka & Santa Fe Ry. Co., 65 F.3d 562, 568 (7th
Cir. 1995); Int’l Union, United Automobile,
Aerospace & Agricultural Implement Workers v.
Skinner Engine Co., supra, 188 F.3d at 145. A
latent ambiguity is an ambiguity (that is,
something that makes it possible to interpret a
document reasonably in more than one way, e.g.,
Anstett v. Eagle-Picher Industries, Inc., 203
F.3d 501, 503 (7th Cir. 2000); Bourke v. Dun &
Bradstreet Corp., 159 F.3d 1032, 1037 (7th Cir.
1998); Computrol, Inc. v. Newtrend, L.P., 203
F.3d 1064, 1070 (8th Cir. 2000)) that is
recognized as such only when a contract clear on
its face--clear, that is, to the uninformed
reader--is applied to a particular dispute. Stone
Container Corp. v. Hartford Steam Boiler
Inspection & Ins. Co., 165 F.3d 1157, 1162 (7th
Cir. 1999); PMC, Inc. v. Sherwin-Williams Co.,
supra, 151 F.3d at 614; AM Int’l, Inc. v. Graphic
Management Associates, Inc., 44 F.3d 572, 575
(7th Cir. 1995); GenCorp, Inc. v. American Int’l
Underwriters, 178 F.3d 804, 818 (6th Cir. 1999);
Charter Oil Co. v. American Employers’ Ins. Co.,
69 F.3d 1160, 1167 (D.C. Cir. 1995). The contract
in Raffles v. Wichelhaus, 2 H. & C. 906, 159 Eng.
Rep. 375 (Ex. 1864), for example, called for the
shipment of cotton on the ship Peerless, which
seemed clear enough; only it turned out that more
than one ship of that name would be sailing from
the same port--a fact that once revealed showed
that the contract actually was ambiguous, because
it was uncertain to which ship the contract
referred. And the existence of the two ships was
an "objective" fact in the sense, necessary to
keep the latent-ambiguity doctrine from
destroying reliance on written contracts, that
establishing the fact did not require determining
the credibility of a party’s self-serving
testimony.
The doctrine of latent ambiguity comes into
play, as we have said, only if someone who read
the contract without knowledge of its real-world
context of application would think it clear. If
even this innocent reader would find the contract
unclear--if, that is, an ambiguity is apparent
just from reading the contract without having to
know anything about how it interacts with the
world--then the contract has what is called a
patent, or intrinsic, ambiguity, and evidence is
admissible to cure it. E.g., Stone Container
Corp. v. Hartford Steam Boiler Inspection & Ins.
Co., supra, 165 F.3d at 1161-62; Home Ins. Co. v.
Chicago & Northwestern Transportation Co., 56
F.3d 763, 767-68 (7th Cir. 1995).
So far we have been describing general contract
law, rather than anything special to the issue of
"vested" employee health benefits (that is,
benefits that continue beyond the expiration of
the contract creating them). Our en banc decision
in Bidlack established a presumption that an
employee’s entitlement to such benefits expires
with the agreement creating the entitlement,
rather than vesting, but that the presumption can
be knocked out by a showing of genuine ambiguity,
either patent or latent, beyond silence. Bidlack
v. Wheelabrator Corp., supra, 993 F.2d at 606-07;
see also Pabst Brewing Co. v. Corrao, supra, 161
F.3d at 440; Diehl v. Twin Disc, Inc., supra, 102
F.3d at 306; Murphy v. Keystone Steel & Wire Co.,
supra, 61 F.3d at 565.
Cases in other circuits are all over the lot.
Some presume vesting. E.g., Maurer v. Joy
Technologies, Inc., supra, 2000 WL 572453, at *6.
Some insist that there be express language to
that effect. E.g., Int’l Union, United
Automobile, Aerospace & Agricultural Implement
Workers v. Skinner Engine Co., supra, 188 F.3d at
139-47; Gable v. Sweetheart Cup Co., 35 F.3d 851,
855 (4th Cir. 1994). Some presume nothing. E.g.,
Deboard v. Sunshine Mining & Refining Co., 208
F.3d 1228, 1240-41 (10th Cir. 2000); Chiles v.
Ceridian Corp., 95 F.3d 1505, 1511-14 (10th Cir.
1996); Joyce v. Curtiss-Wright Corp., supra, 171
F.3d at 134-35; Barker v. Ceridian Corp., 122
F.3d 628, 634-38 (8th Cir. 1997); Int’l Ass’n of
Machinists & Aerospace Workers v. Masonite Corp.,
supra, 122 F.3d at 231-32.
One case holds that benefits are presumed to
vest if they are conferred by a collective
bargaining agreement rather than an unbargained-
for ERISA plan, on the theory that employee
interests are more likely to be reflected in a
negotiated agreement than in one presented to
employees as a condition of their employment.
Int’l Union, United Automobile, Aerospace &
Agricultural Implement Workers v. Yard-Man, Inc.,
716 F.2d 1476 (6th Cir. 1983); contra, Int’l
Union, United Automobile, Aerospace &
Agricultural Implement Workers v. Skinner Engine
Co., supra, 188 F.3d at 139. Several cases adopt
the opposite presumption when (but only when) the
benefits are conferred in an ERISA plan. E.g.,
Sprague v. General Motors Corp., 133 F.3d 388,
400 (6th Cir. 1998) (en banc); Maurer v. Joy
Technologies, Inc., supra, at *6. It can be
argued that a reversal of these presumptions
would make better sense--that if the union
negotiated for such rights, they would surely
appear in the collective bargaining agreement,
whereas an employee ought to get the benefit of
vague language in his ERISA plan. The distinction
between collective bargaining agreements and
ERISA plans is not recognized in our cases, and
we are not minded to embrace it now and make the
law even more complicated than it is. What is
clear and worth remarking, however, is that the
interpretive problem will diminish, at least in
this circuit, in the collective bargaining
setting. For as word of the Bidlack presumption
spreads and collective bargaining agreements are
renegotiated, it will become obvious to unions
that if they want to assure that employer-paid
health benefits for the workers they represent
are vested they will have to insist on explicit
language to this effect.
Our presumption against vesting, it is important
to emphasize, kicks in only if all the court has
to go on is silence. If there is some positive
indication of ambiguity, something to make you
scratch your head (but the "something" must be
either language in the plan or contract itself or
the kind of objective evidence that can create a
latent ambiguity under principles of contract
law, Murphy v. Keystone Steel & Wire Co., supra,
61 F.3d at 565), the presumption falls out. The
presumption is thus a default rule, that is, a
rule to be applied when there is no other
evidence, Bidlack v. Wheelabrator Corp., supra,
993 F.2d at 607, 609; E. Allan Farnsworth,
Contracts sec. 7.16, p. 498 (3d ed. 1999), or
what in earlier parlance was called an exploding
presumption--one that disappeared once evidence
was introduced, as distinct from an evidentiary
presumption, which might continue to weigh in the
decision maker’s balance after other evidence
came in. Language in American Federation of Grain
Millers v. Int’l Multifoods Corp., 116 F.3d 976,
980 n. 3 (2d Cir. 1997), might lead a reader to
think that Bidlack created an evidentiary
presumption; it did not.
Bidlack enables the employer to fend off a trial
without having thought to have included in the
contract an express provision limiting the
duration of the benefits. The presumption plugs
the interpretive hole that would otherwise be
left by silence about duration. But it remains
open to a plaintiff to show that the relevant
contractual provisions contain either patent or
latent ambiguities.
Begin with patent ambiguity and recall the three
provisions that bear on the issue of post-
termination rights: (a) Blue Cross and Blue
Shield medigap insurance for retirees enrolled in
Medicare, plus a Blue Cross-Blue Shield
prescription drug program except insofar as the
retiree "may become eligible [for a similar
benefit] as a result of any future hospital-
surgical legislation"; (b) for those retirees not
enrolled in Medicare, the same coverage as for
active employees; and (c) "the coverage described
in subsections (a) and (b) shall continue for the
covered dependents of a deceased retired employee
to the end of the sixth month following the month
in which death occurs." That the coverage in (c)
is to continue for a specified time after the
retiree dies sets at least an outer limit. But
with regard to the duration of the benefits
granted by (a) and (b), benefits sought in this
case along with dependents’ benefits, the
contract is silent except insofar as the
reference to future legislation in (a) might be
thought to point beyond the expiration of the
contract, which seems to us a weak inference.
While there is no qualification explicitly
negating such an inference--no "unless the
collective bargaining agreement has expired" or
"during the term of this agreement," the latter
being the formula that we held in Pabst Brewing
Co. v. Corrao eliminated any patent ambiguity--
neither is there any language to suggest that
these benefits survive the expiration of the
agreement.
It is unclear whether the reference to coverage
in clause (b) refers only to the scope of the
benefits or also to how long they are to last,
though the former seems the more natural meaning
to impress on the words, which means that (b) is
silent on duration. As is clause (a)--a silence
that Pabst argues is pregnant in light of (c),
which does mention duration, though not vesting.
But the contrary inference to what Pabst seeks to
draw from the comparison is as plausible.
Dependent coverage, the subject of clause (c),
would often continue for a very long time were it
not truncated by the six-month provision.
Retirees’ dependents will generally be younger
than retirees, as they may include children. And
either because they are younger or because they
are women--and retirees’ spouses will generally
be both, since most of Pabst’s maintenance
workers we may assume were men, and wives are on
average younger than husbands--they will tend to
have a longer life expectancy. True, the children
will no longer be entitled to medical benefits
once they reach adulthood and so cease to be
dependents; nevertheless dependent coverage is
more open-ended from a durational standpoint than
coverage limited to retirees. And true too, the
younger the dependents are, the lower their
expected health costs are expected to be in the
near term; but by the same token, if they are
under 65 they are ineligible for Medicare and so
may cost the employer more in health benefits
than retirees do, since the benefits granted by
the collective bargaining agreement are
supplementary to Medicare. For these reasons an
employer might want to specify a time limit short
of death for dependent benefits yet feel no
similar need to limit the duration of retirees’
benefits.
A search for patent ambiguity must canvass the
entire agreement. A provision that seems
ambiguous might be disambiguated elsewhere in the
agreement. E.g., St. Paul Fire and Marine Ins.
Co. v. Warwick Dyeing Corp., 26 F.3d 1195, 1199
(1st Cir. 1994); Kass v. Kass, 696 N.E.2d 174,
180-81 (N.Y. 1998). Pabst points us to the
provision concerning active (as opposed to
retired) employees and notes that the benefits
conferred on them include "dependent children
from age twenty-five (25) for life if totally and
permanently disabled." But in arguing that this
shows that the agreement is explicit when it
means to confer lifetime benefits, Pabst
overlooks the fact that obviously the benefits of
active employees are only for as long as the
collective bargaining agreement is in effect,
since otherwise the employer’s potential
liabilities would be staggering. That is so
obvious that if there is to be an exception (this
fortunately tiny exception for permanently
disabled children), we expect it to be explicit,
not implicit.
But while Pabst has not proved that the contract
clearly excludes vesting, we doubt that the
plaintiffs have rebutted the Bidlack presumption
by demonstrating a patent ambiguity. For when all
the toing-and-froing is done, the fact remains
that the clauses on which the plaintiffs mainly
rely, clauses (a) and (b), are completely silent
on duration, in contrast to Bidlack, where the
collective bargaining said 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
those benefits "shall be continued for the spouse
after the death of the retiree." 933 F.2d at 605-
606 (emphasis added); and see id. at 608. But we
need not pursue the issue, as there is latent
ambiguity here. The bulk of the workers at
Pabst’s Milwaukee brewery belonged to the brewery
workers’ union rather than, as the plaintiffs
here did, to the machinists’ union. Although
these are separate unions, they negotiated
essentially identical collective bargaining
agreements, concerning health and welfare
benefits at any rate, with Pabst--with a pregnant
exception: In 1984 the collective bargaining
agreement between Pabst and the brewery workers’
union was amended to limit health and welfare
benefits for the "term of this agreement." Pabst
Brewing Co. v. Corrao, supra, 161 F.3d at 435-36.
No similar amendment was ever made to the
agreement with the machinists, and the reason may
be that there were so many more retired brewers
than retired machinists--700 plus, versus only
45. It would be natural for Pabst to be more
concerned about the cost of lifetime benefits for
the former than for the latter. Another bit of
evidence favoring the plaintiffs is that Schlitz
Brewing Company, which had a collective
bargaining agreement with the machinists’ union
that was identical to the agreement at issue in
this case, continues to this day to provide
health insurance to the retired machinists of its
Milwaukee facilities, which it closed in 1981,
Jos. Schlitz Brewing Co. v. Milwaukee Brewery
Workers’ Pension Plan, 3 F.3d 994, 997 (7th Cir.
1993), after the expiration of the agreement. The
point we made earlier, about the possible
inference from (c) and the different average ages
of retirees and their spouses and dependents,
reappears as another bit of extrinsic evidence
(extrinsic because the ages of the retirees,
their spouses and dependents, do not appear in
the contract) in support of the plaintiffs’
interpretation.
Such evidence does not prove that that
interpretation is correct, but it shows that the
silence of the collective bargaining agreement
with respect to vesting makes the agreement
genuinely ambiguous and not merely incomplete. If
it were merely incomplete, the Bidlack
presumption would complete it and defeat the
plaintiffs’ case.
These items of evidence are "objective" in the
sense (the relevant sense) that either they can
be established by disinterested witnesses, or
they are uncontested, or, as here, they are both.
PMC, Inc. v. Sherwin-Williams Co., supra, 151
F.3d at 614; Mathews v. Sears Pension Plan,
supra, 144 F.3d at 467; AM Int’l, Inc. v. Graphic
Management Associates, Inc., supra, 44 F.3d at
575. Evidence is not objective when it is the
self-serving testimony of one party to the
contract as to what the contract, clear on its
face, "really" means, contrary to what it seems
to mean. Id.; PMC, Inc. v. Sherwin-Williams Co.,
supra, 151 F.3d at 614-15; Bank v. Truck Ins.
Exchange, 51 F.3d 736, 737 (7th Cir. 1995); Int’l
Union, United Automobile, Aerospace &
Agricultural Implement Workers v. Skinner Engine
Co., supra, 188 F.3d at 146. The plaintiffs want
us to consider such testimony as well--testimony
that a Pabst official, now conveniently dead,
told the union that retirees had lifetime
coverage. That testimony is self-serving,
unverifiable, and therefore inadmissible to
create a latent ambiguity.
But it is important to note that once a contract
is found by the court to be patently or latently
ambiguous, then (in most jurisdictions, in any
event, and in the federal courts) any evidence
that would normally be admissible in a trial
becomes admissible to show what the contract
meant. Dawn Equipment Co. v. Micro-Trak Systems,
Inc., 186 F.3d 981, 987 (7th Cir. 1999); In re
Modern Dairy of Champaign, Inc., 171 F.3d 1106,
1109 (7th Cir. 1999); Town of Norwood v. New
England Power Co., 202 F.3d 408, 417 (1st Cir.
2000); Charter Oil Co. v. American Employers’
Ins. Co., supra, 69 F.3d at 1168. This is more
often assumed than articulated, but Charter Oil
is a square holding, and we think it makes sense
and therefore retract our contrary, and
unreasoned, dictum in Stone Container Corp. v.
Hartford Steam Boiler Inspection & Ins. Co.,
supra, 165 F.3d at 1162. For, with the exception
of the parol evidence rule (usually regarded,
however, as a substantive rule of contract law
rather than a rule of evidence, AM Int’l, Inc. v.
Graphic Management Associates, Inc., supra, 44
F.3d at 576; Mohr v. Metro East Mfg. Co., 711
F.2d 69, 72 (7th Cir. 1983); Johnson Enterprises
of Jacksonville, Inc. v. FPL Group, Inc., 162
F.3d 1290, 1309 n. 47 (11th Cir. 1998);
Farnsworth, supra, sec. 7.2, pp. 428-30), there
are no special evidentiary rules for the trial of
a breach of contract case. The rules concerning
ambiguity are applied before trial, to see
whether there is a triable issue. E.g., AM Int’l,
Inc. v. Graphic Management Associates, Inc.,
supra, 44 F.3d at 575; GenCorp, Inc. v. American
Int’l Underwriters, supra, 178 F.3d at 818. The
rules function as gatekeepers, to prevent a
disappointed contract party from ginning up a
fishy story about what the contract really meant
but didn’t say. They are not rules of evidence
governing the admissibility of evidence offered
at trial, once ambiguity is found. For example, a
union officer’s testimony to what a company
official once said the contract (which he had
participated in negotiating) meant, although not
usable to establish a latent ambiguity, would
presumably be admissible at trial as the
admission of a party opponent. Fed. R. Evid.
801(d)(2)(D).
To summarize the rule of law that we apply, and
that requires reversal and a trial:
1. If a collective bargaining agreement is
completely silent on the duration of health
benefits, the entitlement to them expires with
the agreement, as a matter of law (that is,
without going beyond the pleadings), unless the
plaintiff can show by objective evidence that the
agreement is latently ambiguous, that is, that
anyone knowledgeable about the real-world context
of the agreement would realize that it might not
mean what it says. This is the Bidlack
presumption and its latent-ambiguity rebuttal.
2. If the agreement makes clear that the
entitlement expires with the agreement, as by
including such a phrase as "during the term of
this agreement," then, once again, the plaintiff
loses as a matter of law unless he can show a
latent ambiguity by means of objective evidence.
This is a general rule of contract law,
independent of but consistent with Bidlack.
3. If there is language in the agreement to
suggest a grant of lifetime benefits, and the
suggestion is not negated by the agreement read
as a whole, the plaintiff is entitled to a trial.
Of course, if the agreement expressly grants such
benefits, the plaintiff is entitled, not to a
trial, but to a judgment in his favor. We are
speaking of a case in which merely suggestive
language creates a patent ambiguity.
4. If the plaintiff is entitled to a trial by
reason of either a patent or a latent ambiguity,
the normal rules of evidence will govern the
trial, and so the parties will not be limited at
trial to presenting objective evidence of
meaning.
We trust that these simple rules will guide, and
perhaps reduce (by facilitating settlement),
further litigation over lifetime benefits in
collective bargaining agreements and ERISA plans,
and maybe litigation over other types of contract
as well.
Reversed and Remanded.