Opinion ID: 424760
Heading Depth: 1
Heading Rank: 2

Heading: The Purchase of Annuities

Text: 27 Yard-Man agreed in the collective bargaining agreement to purchase annuities to fund its supplemental pension plan in the event of business failure. It is undisputed that Yard-Man has failed to do so. Instead, after the commencement of this suit, Yard-Man distributed directly to the individual retirees lump sum payments of the present value of these pension benefits. 9 The UAW was neither consulted or notified prior to this distribution. Noting that the required annuities were available but not purchased because they would be uneconomical for Yard-Man, the District Court found Yard-Man in breach of its contractual obligations and ordered specific performance. 10 28 Yard-Man asserts two defenses to liability which were rejected without discussion by the District Court: accord and satisfaction (substituted performance) and estoppel. Yard-Man argues that its offer of substituted performance in the form of lump sum distribution checks was accepted and the distribution retained by the retirees, thereby discharging its original obligation. Moreover, Yard-Man contends that since it could not invest or utilize those funds after the retirees accepted them, the retirees and the union which is suing on their behalf are estopped from seeking specific performance by virtue of Yard-Man's detrimental reliance. 11 The UAW in response asserts that neither defense can be effective in the present case because Yard-Man failed to notify the retirees' legal representative, the UAW, of the proposed substituted performance. 29 The contentions of the parties raise two related legal issues. First, whether retirees may, consistent with federal labor law, settle their contractual disputes over benefits directly with their former employer by means of accord and satisfaction without notice to or the consent of their union? Second, even if they may, are such direct settlements between retirees and the former employer, entered into without notice to or consent of the union, precluded once the union undertakes the legal representation of the retirees in a Sec. 301(a) litigation? 30 The prime consideration in resolving the initial question must be whether direct settlement between retirees and their former employer without notice to or the consent of the union is in any fashion inconsistent with the national labor statutes and their primary purpose of promoting industrial peace. Lincoln Mills, 353 U.S. at 457, 77 S.Ct. at 918. See United Ass'n of Journeymen, Plumbers & Pipefitters v. Local 334, United Ass'n of Journeymen, Plumbers & Pipefitters, 452 U.S. 615, 636-37, 101 S.Ct. 2546, 2557-58, 69 L.Ed.2d 280 (1981) (Stevens, J., dissenting). See generally 29 U.S.C. Sec. 151 (1976). 31 Initially, a distinction must be recognized between retiree contractual benefits under a collective bargaining agreement and the terms and conditions of employment created by that agreement for active employees. In the case of active employees, Congress has spoken directly on the issue of settlements between employer and employee. Title 29 U.S.C. Sec. 159(a) specifically permits adjustments between employer and employee without intervention of the union so long as the agreement is not inconsistent with the terms of the bargaining agreement and the union has been given an opportunity to be present. 32 In Pittsburgh Plate Glass Co., 404 U.S. at 176-82, 92 S.Ct. at 396-99, the United States Supreme Court held that employers are under no obligation to bargain with unions over benefits for already retired workers. The Court reasoned that retired workers were neither employees under federal labor law nor properly members of the appropriate bargaining unit. As such, benefits for retired workers are not a mandatory but rather only a permissive subject of collective bargaining. Id. at 170, 180-82, 92 S.Ct. at 393, 398-99. Similarly, the union has no duty to represent retirees with the employer, although it may choose to do so. Id. at 181 n. 20, 92 S.Ct. at 398 n. 20. Thus, since retirees are not employees under the Act, Sec. 159(a) itself clearly does not apply. 33 There is no provision parallel to Sec. 159(a) relating to settlements between retirees and former employers. Nor would creation of a Sec. 159(a) type notice by analogy be appropriate. Section 159(a) represents a policy favoring settlements while protecting the union's interest in the integrity of the collective bargaining agreement and the terms and conditions of employment of the active employees. The statute requires notification to the union prior to employer settlements with active employees out of recognition of the union's status as the active employee's sole bargaining representative. In the case of retirees, who are not employees or members of the bargaining unit and whose relationship to the employer and union is not directly controlled by the labor statutes, this primary rationale for notification no longer exists. While the union may have bargained for and received benefits for retirees, it does not have the same interest in the enforcement of those contractual rights on the behalf of individual retirees that it has in the terms and conditions of employment of active employees. Unlike the active employees, retirees face no restrictions whatever in seeking fulfillment of contractual benefits directly from their former employer. See Rehmar v. Smith, 555 F.2d 1362, 1370 n. 6 (9th Cir.1976); 404 U.S. at 181 n. 20, 92 S.Ct. at 398 n. 20. See also Smith v. Evening News Ass'n, 371 U.S. 195, 200-201, 83 S.Ct. 267, 270-271, 9 L.Ed.2d 246 (1962). Similarly, the union is under no obligation to seek enforcement of such rights. See, e.g., Nedd v. United Mine Workers of America, 556 F.2d 190, 200 (3d Cir.1977). 34 While a collective bargaining agreement is not simply an ordinary contract, see, e.g., Hendricks v. Airline Pilots Association, International, 696 F.2d 673, 676 (9th Cir.1983), the vested rights of a retiree are essentially contractual in nature. Cf. 404 U.S. at 181 n. 20, 188, 92 S.Ct. at 398 n. 20, 402. Thus, the relationship of retiree and employer is unadorned with those special considerations peculiar to the relationship between an active employee, his union and the employer which justified creation of those minimal notice requirements that do exist for active employees under the national labor laws. 12 In settling a claim for vested benefits, the retiree does not modify the collective bargaining agreement. Nor can the retiree affect the terms and conditions of employment by doing so, as an active employee might upon direct settlement of a grievance with the employer. A direct settlement between an active employee and the employer which is inconsistent with the terms of the collective bargaining agreement might, for example, result in an unfair labor practice. This is not the case for retirees who are free to settle their differences with the former employer on whatever terms desired, including a compromise over disputed contractual benefits. 35 Active union members need their joint common strength to bargain most effectively for improvements in wages, hours and working conditions. That need is explicitly recognized in the federal labor statutes. 29 U.S.C. Secs. 151, 157, 159. See also Pittsburgh Plate Glass, 404 U.S. at 174-75, 175 n. 15, 92 S.Ct. at 395-96 n. 15. As retirees, however, former employees do not need that joint common strength to enforce their vested contractual rights against their former employer. See 404 U.S. at 181 n. 20, 92 S.Ct. at 398 n. 20. See also id. at 172-73, 92 S.Ct. at 393-95; Pittsburgh Plate Glass Co., Chemical Div. v. NLRB, 427 F.2d 936, 942 n. 9, 946 (6th Cir.1970), aff'd 404 U.S. 157, 92 S.Ct. 383, 30 L.Ed.2d 341 (1971). Each retiree has an undisputable and effective remedy against the employer for a breach of contract under Sec. 301(a). 13 See 404 U.S. at 176, 188, 92 S.Ct. at 396, 402. The retiree, no longer a member of the union, may not want the union to be notified of what the retiree wishes or intends to do. This Court is unable to discern any policy basis in federal labor law which would be served by rejecting application of the well-established principle of accord and satisfaction to disputes over retiree benefits merely because they were created in collective bargaining agreements. Such a rejection would not in any fashion promote labor peace or the interests of the individual retirees. 36 The case for creating such a notice rule in the narrow circumstances in which a union has actually undertaken representation of the retirees in a Sec. 301(a) litigation is somewhat more compelling. Under these circumstances the union has clearly manifested its interest in the preservation of the disputed benefits and presumably believes collective legal representation to be in the best interests of its former members. Yet, all of the reasons for not creating such a notice requirement in the absence of a union instituted Sec. 301 suit apply with equal force when the union has undertaken such representation. Nor is there any new discernible inconsistency between direct retiree-employer settlements and national labor policies brought about by the union's active role in initiating a Sec. 301(a) litigation. 14 Most importantly, we do not believe that the union's interest in the retirees' contractual claims is sufficient to either demand judicial creation of a procedural notice requirement or override the right of individual retirees to settle their contractual disputes directly with their former employer. 37 The UAW contends that there can be no meeting of the minds on a substituted performance when the legal representative of the suing party has not been contacted. Since this is not true in normal civil litigation, see, e.g., Lewis v. S.S. Baune, 534 F.2d 1115, 1122 (5th Cir.1976); Cook v. Moran Atlantic Towing Corp., 76 F.R.D. 481 (S.D.N.Y.1977); Krause v. Hartford A. & I. Co., 331 Mich. 19, 26-27, 49 N.W.2d 41 (1951), the validity of this assertion depends upon the existence of special considerations particular to federal labor law. As discussed above no such special considerations exist. 38 We do not suggest that the union has no standing to bring a suit on behalf of retirees. United Steelworkers of America, AFL-CIO v. Canron, Inc., 580 F.2d 77, 80 (3d Cir.1978). As a signatory to the contract it could bring an action for the third party beneficiary retirees. Nor do we suggest that the union is without interest in the outcome of potential settlements between the employer and the retirees. See, e.g., 404 U.S. at 176 n. 17, 92 S.Ct. at 396 n. 17. See also Toensing v. Brown, 528 F.2d 69, 72 (9th Cir.1975); Rosen v. Public Service Electric and Gas Company, 477 F.2d 90, 94 n. 8 (3d Cir.1973); UAW v. Acme Precision Products, 515 F.Supp. 537, 539-40 (E.D.Mich.1981). Clearly the union's efforts in ensuring employer compliance with all of the terms of a collective bargaining agreement are a significant consideration for the active employees when choosing to retain the union as their exclusive bargaining representative. In this sense the union has a direct interest in maintaining the integrity of the retiree benefits created by the collective bargaining agreement. 15 See 404 U.S. at 176 n. 17, 92 S.Ct. at 396 n. 17. Yet, the issue here is not whether or not the union has some residual representation interest in the fate of former members of the bargaining unit. 16 Rather, the issue essentially concerns the right of individual retirees to resolve disputes over contractual benefits directly with the former employer without the union's involvement. There are simply no discernible federal labor law policies which restrict the right of individual retirees to settle their contractual disputes directly with their former employer without notice to the union. 39 Even accepting that some minimal form of notice to the union may be desirable once the union has undertaken legal representation on the retirees' benefits, there are compelling reasons why we should not adopt a judicially mandated procedural requirement. First, it is important that in requiring notice we would be creating a procedural rule, something courts are reluctant to do, unless required by due process. There would be the problem, of defining when notice must be given. Should it be required for every settlement with every retiree? Clearly this would be inappropriate. Yet which rights or benefits are so significant that notice would be required? And by what measure do the district courts determine that question? This procedural rule would presumably be applied not only in this litigation, but in a myriad of unknown pending controversies. We cannot know its effect in those unknown cases. Without clear justification of significance beyond the special circumstances presented in the case at bar this uncertainty strongly cautions against judicial adoption of any rule. 40 This is particularly true where, as in this case, the law already provides protection against the harm perceived. If, on remand, the District Court determines that the retirees had been victims of overreaching, the present settlements could be set aside. See, e.g., S.S. Braune, 534 F.2d at 1122. Collectively bargained benefits for retirees have existed for scores of years now and so far as can be determined there has been no need for such notice. This is another pragmatic reason for not creating such a duty now in the absence of some clear policy reason to do so. 41 In the present case the District Court held that, as a matter of law, Yard-Man could not provide a substituted performance in accord and satisfaction 17 of contractual obligations to the retirees. Since we have found this to be in error, it is necessary to determine what principles of accord and satisfaction should be applied. Even though essentially contractual in nature, the disputed retiree benefits in this case nevertheless arise under a collective bargaining agreement and may be, as here, the subject of a federal suit under Sec. 301 of the National Labor Relations Act. Under these circumstances, it is clear that it is federal substantive law which controls resolution of the contractual dispute. Lincoln Mills, 353 U.S. at 456-57, 77 S.Ct. at 917-18. In the absence of controlling federal law principles, however, we may look for guidance to general common law principles, including the substantive law of the state in which the contract arose. These borrowed principles in this context, of course, are absorbed as federal law and become the federal common law of labor disputes. See id. at 457, 77 S.Ct. at 918. The principles of accord and satisfaction are well established in both the general common law and the law of Michigan where the present contract originates. The basic elements of this affirmative defense align themselves with normal contract principles of offer and acceptance. There must be a disputed claim, 18 a substituted performance agreed upon and accomplished, and valuable consideration. E.g., Risk v. Wells, 362 Mich. 414, 420, 107 N.W.2d 776 (1961); 262 (1933). See also Keppard v. International Harvester Co., 581 F.2d 764 (9th Cir.1978) (applying California law); Brock & Blevins Company v. United States, 343 F.2d 951, 955 (Ct.Cl.1965). See generally 6 Corbin on Contracts Sec. 1276 (1962 & Kaufman, Supp.1982); 5 Williston on Contracts Sec. 680 at 259-61 (3d Ed.1961). For the reasons already discussed we see no discernible inconsistency between these general principles and federal labor law. 42 The factual predicates for Yard-Man's defense remain unresolved and summary judgment, therefore, is inappropriate. On remand the District Court must apply the basic elements of the affirmative defense of accord and satisfaction to determine whether such defense is viable. The court should also consider any contention that the actions of Yard-Man constituted overreaching. We affirm in part and reverse in part and remand this issue to the District Court for further proceedings consistent with this opinion. 43