Court Opinion

ID: 9484265
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:46:20.147178+00
Date Added: 2024-06-11T17:50:07.674433
License: Public Domain

CUDAHY, Circuit Judge,
with whom RIPPLE and ROVNER, Circuit Judges, join, concurring in the judgment.
The issue here is the appropriate default rule for determining whether collective!y bargained retiree health benefits have vested. The default rule imposed in Senn v. United Dominion Indus., Inc., 951 F.2d 806 (7th Cir.1992), 'provides, as I understand it, that retiree benefits vest only if the language of the collective bargaining agreement states explicitly that the benefits have vested; resort to extrinsic evidence is improper even if the agreement is ambiguous with respect to vesting. One of the stated reasons for taking the present case en banc was to consider whether Senn should be overruled. The lead opinion has elected to distinguish Senn (on somewhat unconvincing grounds) rather than to overrule it. Although both the lead opinion and dissent pay it passing respects, Senn and its default rule now do seem to me to be a dead letter. So far as it goes, this is a constructive outcome.
I agree in large part with the lead opinion. I write separately only to suggest that, while *611its approach takes us in the right direction, it has stopped short of what could be a better solution. As an initial matter, the lead opinion, in reviewing the possible default rules for determining whether retiree benefits have vested, fails to note the full spectrum of available rules. It finds, ante at 607-08, only three possible default rules for determining when retiree benefits vest:
1. “Strong" No-Vest Rule. This rule, specifically adopted in Senn, provides that retiree health benefits in collective bargaining agreements do not vest unless the language in the agreement explicitly provides for vesting. If the agreement does not employ the words “vest” or “lifetime” or other clear vesting language, then the presumption against vesting governs, the document is deemed unambiguous and resort to extrinsic evidence is barred.
2. “Weak” No-Vest Rule. This rule holds that if the collective bargaining agreement is ambiguous with respect to vesting, resort to extrinsic evidence is proper. However, if a preponderance of the evidence does not show that the parties intended the benefits to vest, the presumption is that they did not.
3. Parol Substitution Rule. This rule would allow use of extrinsic evidence to determine the intent of the parties as to vesting even when there is no ambiguity in the collective bargaining agreement, as when the agreement is silent. Presumably, in the absence of extrinsic proof of vesting, the court would infer that the parties did not intend to have the benefits vest.
The lead opinion specifically adopts option 2, the weak no-vest rule. First, it rejects the strong no-vest rule (the Senn rule) because its rigidity may frustrate the actual intent of the parties, and it is in tension with the Seventh Amendment right to a jury trial. Ante at 607, 609. The lead opinion likewise rejects option 3 because that rule would resort to extrinsic evidence even when the agreement is silent about retiree benefits, thus “depriving parties of the protection of a written contract.” Id. at 607. Having rejected both of these “extreme” options, the lead opinion falls back on the one remaining option, the weak no-vest rule, and finds that it comports with settled principles of contract law. What the lead opinion does not consider, however, are the corresponding default rules presuming that the benefits do vest. The three parallel rules are:
4.“Strong” Vest Rule. This rule would presume that the parties intended the benefits to vest unless they explicitly stated otherwise. If there is an ambiguity, the presumption takes effect and there can be no recourse to extrinsic evidence.
6. “Weak” Vest Rule. This rule would presume that benefits vest unless there is evidence of an agreement to the contrary. If the collective bargaining agreement is ambiguous, then consideration of extrinsic evidence is permitted to determine whether the parties did not intend the benefits to vest.
6. Parol Substitution Rule. Like its counterpart, it would resort to extrinsic evidence even when the collective bargaining agreement is silent (or otherwise unambiguous) about the vesting of benefits. But in the absence of proof that the parties did not intend the benefits to vest, it would presume the benefits vested.
I agree with the lead opinion that we can dispose summarily of the parol substitution rules, options 3 and 6. Both rules would denigrate the function of a written contract, in derogation of the traditional parol evidence rule. Choosing among the four remaining default rules, however, is more difficult. As both the lead opinion and dissent recognize, options 1 and 4 (the strong rules) have their advantages. The requirement of clarity serves a worthy purpose. The strong rules would motivate parties to reach an explicit agreement and save courts from the difficult task of interpreting ex post what the parties intended. Options 2 and 6 (the weak rules), on the other hand, would likewise tell the parties what the law would presume in the absence of an agreement, but these rules would not foreclose judicial inquiry into extrinsic evidence to determine the actual intent of the parties. Of course, depending on *612which view — the lead’s or the dissent’s — one supports, access to extrinsic evidence is the greatest strength or weakness of options 2 and 5.
We should recognize initially that, when those affected by a chosen default rule can easily bargain around it to agree to a mutually beneficial course, the rule choice will generally make little difference to the parties’ actual agreement. Ante at 609; Post at 619; Ronald Coase, The Problem of Social Cost, 3 J.Law & Econ. 1 (1960). When bargaining is easy, courts selecting a default rule may properly look past those parties affected by the rule to other advantages or disadvantages a particular rule may entail, such as the costliness of its administration. In theory, the strong rules have some intuitive appeal because it should be easy for companies and unions to bargain around any presumption we might impose; again theoretically, it should make little difference to the parties what rule would apply should they not address the vesting question. The parties are sophisticated and the cost of bargaining is slight. On the other hand, unions and companies might sometimes prefer ambiguity: the retirees can feel secure, while the bargainers leave some unspoken flexibility for future bargains. In any event, the strong rules mean no more ambiguities, no more extrinsic evidence and no more prolonged litigation.
But this logic ignores one crucial factor: the parties before us here, and many who have yet to come before us, cannot bargain around our default rule. Our default rule comes too late for them' — the bargain has been struck When the parties or the situation are such that those affected by the rule cannot bargain around it, the choice of default rule is different; for the rule may, in effect, supply terms to which the parties are bound but to which they have not explicitly agreed. In these circumstances, courts should try to select the default rule that best reflects the course the parties would have taken had they bargained freely. Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 15 (1991); Richard Posner, Economic Analysis of Law 372 (3d ed. 1986). But because the parties did, in fact, bargain at arms-length, what they would have negotiated is precisely what they did negotiate. Thus, when applying a default rule retrospectively to transactions negotiated at arms-length, courts should select the rule that best reflects what the parties did negotiate and that enables the negotiated terms to take effect.
Under those circumstances, we encounter the major flaw of the strong rules. The strong rules presume that parties to all collective bargaining agreements were negotiating under the same assumptions, and foreclose evidence of what the parties actually negotiated. Realistically, however, certain parties to a series of collective bargaining agreements, in the absence of a judicially imposed default rule, may have their own default rule; and their default rule may not be the same as that adopted by various other parties to collective bargaining agreements. As the dissent correctly notes, the parties to a collective bargaining agreement have an ongoing relationship, in which the parties, often represented by the same persons, meet every three years to negotiate over terms previously negotiated. The understandings and practices of the parties develop a sort of common law for interpreting their agreements.1 Yet the imposition of a strong rule would bind the parties to certain default terms even when there is evidence that they were working under exactly the opposite assumptions. A strong rule, consequently, may frustrate what the parties actually intended.2
*613The weak rules, on the other hand, are more flexible in that they are better able to respect the agreement of the parties. Of course, they do provide clear presumptions around which the parties can effectively bargain. And, as noted, prospective application of a weak rule should not be too different from prospective use of a strong one. But retrospective application of a weak default rule, unlike a strong rule, enables parties to correct the imposition of default terms by using extrinsic evidence of actual intent. To be sure, with flexibility goes ambiguity and the greater likelihood of litigation. But this is not too high a price to pay when something as crucial as retiree health benefits is at stake. Getting at the real intention of the parties seems well worth the costs of making the determination. See, e.g., Air Line Stewards and Stewardesses Ass’n, Local 550, etc. v. American Airlines, Inc., 763 F.2d 875, 877-78 (7th Cir.1985) (“the primary object in construing a contract is to give effect to the intention of the parties.”), cert. denied, 474 U.S. 1059, 106 S.Ct. 802, 88 L.Ed.2d 778 (1986).
Hence, I think the only real choice is between the two weak rules, options 2 and 5, and here I must differ with the lead opinion. For I may see a different social reality within which these agreements were entered.3 Before about 1980, I seriously doubt that it occurred to many employers to grant retiree health benefits on anything less than a lifetime basis.4 The overwhelmingly prevalent trend of labor contracts was to continue or improve retiree benefits from contract to contract. It was only in the eighties, with spiraling medical costs, heightened foreign competition, epidemic corporate takeovers and the declining bargaining power of labor, that thought was first given to reducing retiree benefits from contract to contract or even (though this seems more implausible) to eliminating such benefits entirely. I think that, at least before the eighties were in full swing, prevailing conditions suggested a presumption among unions and management alike that retiree health benefits vested unless there was agreement to the contrary. Hence, I would lean toward option 5 and the application of the weak vest rule — -the position adopted by the Sixth Circuit in the seminal case, International Union, United Auto, etc. v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir.1983), cert. denied, 465 U.S. 1007, 104 S.Ct. 1002, 79 L.Ed.2d 234 (1984). See also Keffer v. H.K. Porter Co., 872 F.2d 60, 64 (4th Cir.1989) (citing Yard-Man as “consistent with a more far-reaching understanding of the context in which retiree benefits arise.”); Local Union No. 150-A United Food & Commercial Workers, etc. v. Dubuque Packing Co., 756 F.2d 66, 69-70 (8th Cir.1985) (inferring that benefits vested because “[t]here is simply.no evidence that the Company and the Union did not intend to *614vest the right to benefits in the retirees.”). But, looking at things as they are rather than as they might be, the direction indicated by the lead opinion in adopting option 2 and the weak no-vest rule is a significant improvement over the apparently extreme course suggested by Senn.

. [T]he parties occasionally have understandings or expectations that were so fundamental that they did not need to negotiate about those expectations. When the court "implies a promise” or holds that “good faith” requires a party not to violate those expectations, it is recognizing that sometimes silence says more tha[n] words....
Arthur Corbin, Corbin on Contracts § 570 (Colin K. Kaufman ed., Supp.1984).

. The dissent suggests that Litton Fin. Printing v. NLRB, - U.S. -, 111 S.Ct. 2215, 115 L.Ed.2d 177 (1991), mandates the imposition of the strong no-vest rule. Litton, however, held that a collective bargaining agreement's arbitration clause did not terminate on the expiration of the agreement, but continued after the agreement's termination to apply to disputes "arising under the contract.” Id. at -, 111 S.Ct. at 2225. Further, the language of the Court in Litton clearly recognizes the existence of vested *613benefits quite independent of "explicit terms.” What the Court said bears repeating:
“Rights which accrued or vested under the agreement will, as a general rule, survive termination of the agreement. And of course, if a collective bargaining agreement provides in explicit terms that certain benefits continue after the agreement’s expiration, disputes as to such continuing benefits may be found to arise under the agreement, and so become subject to the contract's arbitration provisions.”
Id. at -, 111 S.Ct. at 2226. The Court does not state that a contract right vests only if the agreement so provides in explicit terms. Rather, vesting is a matter of contract interpretation, which seeks to determine the intent of the parties.

. [Wjhat parties do "agree to,” particularly when they are silent, must be interpreted in light of [those] assumptions about reality that they share. These assumptions are captured in the prevailing conventions in the relevant community of discourse. Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 Va.L.Rev. 821, 902 (1992).

. Nothing in Chemical Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 92 S.Ct. 383, 30 L.Ed.2d 341 (1971), suggests otherwise. In that case, a collective bargaining agreement specified that the company could discontinue part of its contributions for retiree health insurance if Medicare was enacted by Congress. Upon the enactment of Medicare, the company attempted to modify the retiree health plan. Instead of reducing or eliminating the negotiated retiree benefits, the company sought simply to substitute Medicare coverage for the negotiated health plan "by offering to pay the supplemental Medicare premium if the employee would withdraw from the negotiated plan.” Id. at 162, 92 S.Ct. at 389. No retiree would have his benefits taken away, and no retiree would have his negotiated benefits substituted for Medicare without his consent.