Court Opinion

ID: 12980
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:22:53+00
Date Added: 2024-06-11T16:46:31.745323
License: Public Domain

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

                                     7
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.

                                           10
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