Court Opinion

ID: 2721299
Source: CourtListenerOpinion
Date Created: 2014-08-27 17:00:14.857895+00
Date Added: 2024-06-11T15:43:19.383211
License: Public Domain

NOT PRECEDENTIAL

                 UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT
                          ______________

                               No. 13-3636
                             ______________

LARRY LEWIS; GREG BITTINGER, on behalf of themselves and others similarly
  situated; KARL BUDAY; GENE F. DAUM; RICHARD F. KUSHKOWSKI;
       JOHN CROCKER; KURT SZYMANSKI; ROBERT KLUGH, SR.,
                                                            Appellants
                                 v.

               ALLEGHENY LUDLUM CORPORATION;
            ALLEGHENY TECHNOLOGIES INCORPORATED
                        ______________

         APPEAL FROM THE UNITED STATES DISTRICT COURT
          FOR THE WESTERN DISTRICT OF PENNSYLVANIA
                        (D.C. No. 2-11-cv-01619)
                 District Judge: Hon. Joy Flowers Conti
                            ______________

                 Submitted Under Third Circuit LAR 34.1(a)
                              May 15, 2014
                             ______________

         Before: SMITH, VANASKIE and SHWARTZ, Circuit Judges

                          (Filed: August 27, 2014)

                             ______________

                                OPINION
                             ______________
SHWARTZ, Circuit Judge.

       Plaintiffs, retired employees of Allegheny Ludlum Corporation (“Allegheny

Ludlum”), appeal the dismissal of their putative class action against Allegheny Ludlum

and Allegheny Technologies Incorporated (collectively, “Defendants”), alleging breach

of contract under both the Labor Management Relations Act (“LMRA”) and the

Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and breach

of fiduciary duty under ERISA. For the reasons set forth below, we will affirm.

                                              I.

       As we write principally for the benefit of the parties, we recite only the essential

facts and procedural history. Plaintiffs were members of the United Steelworkers union

(“USW”). USW had collective bargaining agreements (“CBAs”) with Defendants. The

CBAs stated that the members’ insurance benefits were set forth in certain agreements,

which were incorporated by reference into the CBAs. The health insurance benefits for

retirees were set forth in the Program of Hospital-Medical Benefits for Eligible

Pensioners and Surviving Spouses (“PHMBs”). Each PHMB from 1981 through the

present contained the following “Continuation of Coverage” provision:

       Any pensioner or individual receiving a Surviving Spouse’s benefit who
       shall become covered by the Plan established by this Agreement shall not
       have such coverage terminated or reduced (except as provided in the Plan)
       so long as the individual remains retired from the Company or receives a
       Surviving Spouse’s benefit, notwithstanding the expiration of this
       Agreement, except as the Company and the Union may agree otherwise.

App. 2151 (emphasis added); see also App. 1816-17, 1871, 1956, 2040, 2045-46, 2048-
                                              2
49.

         Certain Plaintiffs opted for early retirement pursuant to the Transition Assistance

Program (“TAP”). The 2004 CBA, in which Defendants and USW agreed to the terms of

the TAP, stated that TAP retirees were entitled to the health benefits offered “under the

PHMB of the Allegheny Ludlum CBA.” App. 1415. Thus, all Plaintiffs are covered by

the PHMBs.

         Prior to 2008, retirees were not required to pay for certain types of coverage under

the PHMBs, but on October 24, 2007, Defendants sent a letter to Plaintiffs and other plan

participants announcing that they had agreed with USW that those “no cost” provisions

would be replaced by coverage that required premium payments, effective January 1,

2008.1

         On November 18, 2011, Plaintiffs filed a Complaint2 alleging that their “no cost”

health benefits were vested, lifetime health benefits that could not be changed after

retirement, and therefore the premiums charged violated the LMRA and ERISA.

Plaintiffs also claim that Defendants breached their fiduciary duty under ERISA by

representing to Plaintiffs, prior to their retirements, that their health benefits would be

provided for life at no cost and by failing to inform them that these benefits could be

         1
        As of January 1, 2008, a $40 (individual) and $80 (family) per month premium
was imposed upon pre-Medicare-eligible retirees, and a $20 (individual) and $40 (family)
per month premium was imposed upon Medicare-eligible retirees.
      2
        Plaintiffs originally filed their complaint in the Northern District of Ohio, but the
case was transferred to the Western District of Pennsylvania.
                                               3
changed by agreement with USW.

       After dismissals of the Complaint and Amended Complaint with leave to amend,

the District Court granted Defendants’ motion to dismiss the Second Amended

Complaint with prejudice for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6).

This appeal followed.

                                                 II.3

   A. Breach of Contract

       Plaintiffs argue that the CBAs vested them with “no cost” lifetime health benefits

and did not grant Defendants the right to change these benefits. ERISA treats the vesting

of welfare plan benefits4 differently from pension benefits by not requiring welfare plan

benefits for retirees to automatically vest because the costs of such plans can fluctuate

due to, among other things, increased treatment costs. U.A.W. v. Skinner Engine Co.,

188 F.3d 130, 138-39 (3d Cir. 1999); see also Smathers v. Multi-Tool, Inc./Multi-

       3
          The District Court had jurisdiction pursuant to 28 U.S.C. § 1331. We exercise
jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review of an order
granting a motion to dismiss and apply the same standard as the District Court. See
Santomenno ex rel. John Hancock Trust v. John Hancock Life Ins. Co., 677 F.3d 178,
182 (3d Cir. 2012). When considering a motion to dismiss, we must determine whether
the complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility
when the plaintiff pleads factual content[, which is assumed to be true,] that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id.
        4
          Welfare plans under ERISA are plans that provide “medical, surgical, or hospital
care or benefits, or benefits in the event of sickness, accident, disability, death or
unemployment . . . .” 29 U.S.C. § 1002(1).
                                             4
Plastics, Inc. Emp. Health & Welfare Plan, 298 F.3d 191, 196 (3d Cir. 2002) (stating that

a “presumption against vesting” exists in cases involving welfare benefit plans). As a

result, ERISA generally allows employers, “for any reason at any time, to adopt, modify,

or terminate welfare plans.” Skinner, 188 F.3d at 138 (internal quotation marks and

citations omitted). An employer’s commitment to vest retiree welfare benefits “is not to

be inferred lightly” and “must be stated in clear and express language.” Id. at 139.

       Here, Plaintiffs have not identified any “clear and express language” in the

PHMBs that confers unalterable, vested lifetime health benefits. Id. Indeed, the

“Continuation of Coverage” provision explicitly reserves the right to change the health

benefits for retirees through future agreement. See App. 2151 (“except as the Company

and the Union may agree otherwise”). Plaintiffs attempt to create ambiguity in the

“Continuation of Coverage” provision5 by pointing to the USW representative’s

deposition, Plaintiffs’ own understanding, and references to the lifetime nature of the

benefits elsewhere in Plan documents. These efforts are unavailing because “the words

of the contract clearly manifest the parties’ intent,” and therefore the “[C]ourt need not

resort to extrinsic aids or evidence.” Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d
5
         Plaintiffs also argue that the “Continuation of Coverage” provision in United
Steelworks of America v. Cortland Container Corp., 105 B.R. 375, 376 (N.D. Ohio
1989), is “virtually indistinguishable” from the provision here, and urge us to adopt that
court’s conclusion, along with the conclusions of other cases addressing similar language.
Appellant Br. 13-17. Those cases rely on U.A.W. v. Yard-Man, Inc., 716 F.2d 1476 (6th
Cir. 1983), in which the Sixth Circuit held that there is a presumption in favor of vesting
for welfare benefits. We expressly rejected Yard-Man in Skinner. 188 F.3d at 140-41.
                                              5
69, 76 (3d Cir. 2011) (internal quotation marks omitted).6 The plain language of the

“Continuation of Coverage” provision makes clear that the USW and Allegheny Ludlum

may agree to change the coverage provided under the PHMBs and, therefore, the

provision is unambiguous. Skinner, 188 F.3d at 142; cf. In re Unisys Corp. Retiree Med.

Benefit ERISA Litig. (Unisys I), 58 F.3d 896, 903-04 (3d Cir. 1995) (holding that an

employer who “used terms such as ‘lifetime’ and ‘for life’ to describe the duration of

retiree medical benefits, while at the same time expressly reserving the company’s right

to terminate the plans under which those benefits were provided, did not render plans

‘internally inconsistent’ and therefore ambiguous”).

       Plaintiffs also argue that the “agree otherwise” language in the “Continuation of

Coverage” provision should be read to apply only to then-active employees (i.e., future

retirees) because USW should not be allowed to “sacrifice [r]etiree interests in favor of

active employees who were the dues-paying Union members.” Reply Br. 9 n.4. Nothing

in the CBAs or PHMBs suggests that USW’s authority is restricted to matters impacting

active employees. See Unisys I, 58 F.3d at 905 (rejecting plaintiffs’ contention that

reservation of rights provision applied only to active employees and not to current

retirees).

       6
        Further, because they are considered “subjective and self-serving extrinsic
evidence,” “the testimonies of union members as to their understanding or belief of the
duration of their retirement benefits cannot as a matter of law create an ambiguity.”
Skinner, 188 F.3d at 146 (internal quotation marks omitted).
                                             6
       Plaintiffs’ claim that the “Continuation of Coverage” provision creates an illusory

promise because Allegheny Ludlum “has unfettered freedom, [sic] to modify or terminate

the healthcare benefits,” Appellant Br. 18, also fails. “An illusory promise is one

containing words ‘in promissory form that promise nothing’ and which ‘do not purport to

put any limitation on the freedom of the alleged promisor.’” Flores v. Am. Seafoods Co.,

335 F.3d 904, 912 (9th Cir. 2003) (quoting 2 Corbin on Contracts 142 (rev. ed. 1995)).

Here, the promise was not illusory because it did not allow for modification solely by

Allegheny Ludlum; instead, it allowed for modification only upon the agreement of both

parties. See App. 2151 (“except as the Company and the Union may agree otherwise”).

Thus, Plaintiffs’ argument ignores the fact that USW is a party to the contract that must

agree to any modification. The fact that retirees are impacted by the changes to the

agreement does not make it illusory.

       TAP retirees fare no differently. The clear language of the 2004 CBA that

memorialized TAP explicitly states that TAP included “retiree health and life insurance

under the PHMB of the Allegheny Ludlum CBA,” App. 1415, confirming that TAP did

not create a new plan. Thus, the TAP retirees are covered under the same PHMBs as

non-TAP retirees, and are subject to the same “Continuation of Coverage” provision.

The fact that TAP retirees were required to sign a General Waiver and Release

Agreement (“Release Agreement”) to participate in TAP does not change their health

benefits. Even though the Release Agreement contained an integration clause and does

                                             7
not describe retiree health benefits or refer to the PHMBs by name, it specifically

incorporates by reference an “informational packet” that identifies the actual benefits

being provided, including “medical coverage under a Company-sponsored medical plan

for Eligible Retirees and Surviving Spouses,” App. 2466, which is a reference to the

PHMBs.

       In sum, Plaintiffs have not identified any “clear and express language” that vests

their health benefits, and therefore their breach of contract claims were appropriately

dismissed.

   B. Breach of Fiduciary Duty

       Defendants challenge the timeliness of Plaintiffs’ fiduciary duty claim. ERISA

prohibits filing suit for fiduciary duty violations more than six years after “the date of the

last action which constituted a part of the breach or violation,” or more than three years

after the plaintiff had “actual knowledge of the breach or violation,” whichever is earlier.7

29 U.S.C. § 1113; see also Montrose Med. Grp. Participating Sav. Plan v. Bulger, 243
F.3d 773, 787 (3d Cir. 2001).

       We have held that “‘actual knowledge of a breach or violation’ requires that a

plaintiff have actual knowledge of all material facts necessary to understand that some

       7
         In addition to finding that the three year statute of limitations barred Plaintiffs’
claims, the District Court found that at least some Plaintiffs were also barred from
bringing a fiduciary claim under the six year statute of limitations. Because we hold that
all Plaintiffs received “actual knowledge” on January 1, 2008 and thus are barred from
suit by the three year statute of limitations ending January 1, 2011, we need not address
whether the six year statute of limitations applies.
                                              8
claim exists, which facts could include . . . knowledge of a transaction’s harmful

consequences, or even actual harm.” Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d

Cir. 1992) (internal citations omitted). To satisfy this requirement, Defendants must

show Plaintiffs actually knew: (1) about “the events that occurred which constitute the

breach or violation,” and (2) that “those events supported a claim of breach of fiduciary

duty or violation under ERISA.” Int’l Union of Elec. Workers v. Murata Erie N. Am.,

Inc., 980 F.2d 889, 900 (3d Cir. 1992). The second prong can be satisfied by “actual

knowledge of harm or harmful consequences.” Richard B. Roush, Inc. Profit Sharing

Plan v. New Engl. Mut. Life Ins. Co., 311 F.3d 581, 587 (3d Cir. 2002).

       Here, Plaintiffs had actual knowledge of the purported breach of fiduciary duty no

later than January 1, 2008, when they began paying increased premiums despite

Allegheny Ludlum’s alleged misrepresentations that they would not have to do so.

Plaintiffs received notice of the event that constituted the alleged breach through the

October 24, 2007 letter that stated that they would owe these premiums. Moreover, the

payment obligations that went into effect on January 1, 2008 were “harm or harmful

consequences” of the type sufficient to satisfy the actual knowledge requirement. See

Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494, 511-12 (3d Cir. 2006) (holding plaintiffs

gained “actual knowledge” when they learned they faced financial penalties in “direct

contradiction” to what they had been told by fiduciary); Kurtz v. Phila. Elec. Co., 96 F.3d
1544, 1551 (3d Cir. 1996) (holding plaintiffs gained “actual knowledge” when they

                                             9
learned of “harmful consequences” of fiduciary’s actions through monetary cost to them).

Thus, because they had knowledge of the harm no later than January 1, 2008, the three

year statute of limitations expired on January 1, 2011. As a result, the fiduciary duty

claim asserted in the November 18, 2011 Complaint is time-barred.

                                            III.

       For the foregoing reasons, we will affirm the District Court’s order granting the

motion to dismiss.

                                            10