Court Opinion

ID: 74534
Source: CourtListenerOpinion
Date Created: 2010-04-26 08:50:01+00
Date Added: 2024-06-11T15:02:14.440045
License: Public Domain

[PUBLISH]

                IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT                     FILED
                                                             U.S. COURT OF APPEALS
                           ________________________            ELEVENTH CIRCUIT
                                                                   MAY 31 2000
                                                                THOMAS K. KAHN
                                 No. 99-12191                        CLERK
                           ________________________

                       D. C. Docket No. 99-01085-CV-G-S

JOHN T. BURKS, CLAUDIA COOK, et al.,
                                                               Plaintiffs-Appellants,

                                       versus

AMERICAN CAST IRON PIPE COMPANY,
                                                               Defendant-Appellee.

                           ________________________

                   Appeal from the United States District Court
                      for the Northern District of Alabama
                         _________________________
                                (May 31, 2000)

Before BIRCH and BARKETT, Circuit Judges, and ALARCON*, Senior Circuit
Judge.

PER CURIAM:

      *
        Honorable Arthur L. Alarcon, Senior U.S. Circuit Judge for the Ninth Circuit,
sitting by designation.
       Appellants/Plaintiffs are a group of retirees and their dependents who claim that

American Cast Iron Pipe Company (“Cast Iron”) promised them health benefits,

including free prescription drugs, for life.       They base their claims on oral

representations, including a promise by Cast Iron’s former president, Steve Moxley,

in the 1950's that “[t]he reason we’re not getting the same raises as U.S. Steel is

getting is because we’re putting it into medical so you’ll get free drugs when you

retire.”

       In addition to these oral representations, the plaintiffs allegedly relied on a

written plan description from 1973 promising lifetime health benefits without

reserving the right to amend the plan. The plaintiffs included a copy of a 1973 plan

booklet in the record excerpts provided on appeal; however, the 1973 document does

not appear to be in the actual district court record and will not be considered.1

       Relying on these alleged representations and plan documents, the former

employees worked for Cast Iron until their retirement. They all retired before

September 2, 1974, the day the Employee Retirement Income Security Act (ERISA)

was enacted. For over twenty years, the retirees received free medical care and

medications through Cast Iron’s health clinic and in-house pharmacists.

       1
       At any rate, the 1973 booklet is not helpful to the plaintiffs, as it does not
appear to provide for free prescription drugs.

                                           2
      Then in 1993, a change in financial accounting standards (FAS No. 106)

increased the negative effect of the benefit plan upon Cast Iron’s financial statements.2

Cast Iron reacted by amending its benefit plan to require that the plaintiffs pay 25%

of the cost of their drugs and medicines. To soften the harm to the retirees, Cast Iron

increased pensions by forty dollars a month.

      Unhappy with this change, the plaintiffs sued in Alabama state court, alleging

breach of contract, fraud, unjust enrichment, and conversion. Their complaint was

based not only on the required co-pay but also on claims of price-gouging by Cast

Iron’s pharmacists, who allegedly charged almost 900% of the Wal-Mart price for the

same medication. Although Cast Iron formed a committee in response to the retirees’

complaints about pricing, the plaintiffs claimed Cast Iron’s actions were inadequate.

They sought injunctive relief to ensure that Cast Iron’s pharmacists would charge

competitive prices.

      Cast Iron removed the case to federal district court based on ERISA

preemption. That same day it filed a motion to dismiss or in the alternative for

      2
       For discussions of the negative effect of FAS No. 106 on retiree health
benefits, see, e.g., Wise v. El Paso Natural Gas Co., 986 F.2d 929, 932-33 and n.3 (5th
Cir. 1993); Gregory J. Ossi, Comment, It Doesn’t Add Up, 13 J. Contemp. Health L.
& Pol’y 233, 240 (1996) (noting that “[b]y the end of 1994, almost half of the
companies in the United States had modified retiree health benefits because of FAS
106").

                                           3
summary judgment, supported by an affidavit of its Director of Human Resources,

Leann Barr. Ms. Barr’s affidavit attached thirteen excerpts from various versions of

the health benefit plan (the “Plan”) and other plan documents dating from 1966

through 1993. These excerpts noted that benefits were not vested and reserved the

right to change or terminate benefits. Full plan documents were not provided.

      Shortly after receiving Cast Iron’s motion, the district court entered a

scheduling order giving the plaintiffs fourteen calendar days to submit briefs,

affidavits and any other materials opposing summary judgment. The plaintiffs moved

to continue consideration of the summary judgment motion until they had a chance

to conduct discovery. Supporting their motion was an affidavit from their counsel

stating that discovery was necessary to review the entire plan documents, of which the

plaintiffs had received only excerpts, and to investigate the extent and nature of oral

representations regarding benefits. The plaintiffs also moved to remand the case to

state court on the grounds that ERISA did not preempt their claims.

      The district court simultaneously denied the plaintiffs’ motions and granted

summary judgment against them. The court ruled that ERISA preempted the

plaintiffs’ claims because “[h]ealth care plans established by employers before

Congress enacted ERISA and that were maintained thereafter became subject to

ERISA in 1975.” The court implicitly ruled that ERISA’s enactment wiped out

                                          4
responsibilities based on actions or misrepresentations predating ERISA. It further

ruled that pre-ERISA employee handbooks and plan documents did not create vested

rights to health benefits.

      The plaintiffs appealed. Because the district court improperly applied post-

ERISA substantive law to rights created before the enactment of ERISA, we affirm

in part and reverse in part.

                                   DISCUSSION

      We review the grant of summary judgment de novo, using the same standards

as did the district court. See Clark v. Coats & Clark, Inc., 990 F.2d 1217, 1222 (11th

Cir. 1993). The judge’s decision not to grant a continuance under Rule 56(f), Federal

Rules of Civil Procedure, is reviewed for abuse of discretion. See Carmical v. Bell

Helicopter Textron, Inc., 117 F.3d 490, 493 (11th Cir. 1997). We review the denial

of a remand motion de novo. See Butero v. Royal Maccabees Life Ins. Co., 174 F.3d

1207, 1211 (11th Cir. 1999).

      Central to all the issues on appeal is the extent to which ERISA preempts the

claims of plaintiffs who all retired before ERISA’s effective date. When Congress

enacted ERISA in 1974, it greatly changed the responsibilities for sponsors and

administrators of employee benefit plans. Aware of the potential unfairness of

imposing ERISA’s requirements retroactively, Congress provided that ERISA “shall

                                          5
not apply with respect to any cause of action which arose, or any act or omission

which occurred, before January 1, 1975.” 29 U.S.C. § 1144(b)(1). This provision

contains inherent tensions where substantive rights were created before ERISA’s

effective date but the cause of action arose after it. See, e.g., Rochford v. Joyce, 755

F. Supp. 1423, 1426-27 (N.D. Ill. 1990) (discussing different circuits’ approaches to

§ 1144(b)(1) and citing cases). In Woodfork v. Marine Cooks & Stewards Union, 642

F.2d 966 (5th Cir. Apr. 1981), the predecessor to this court resolved the tensions by

ruling that whenever a cause of action for employee benefits accrues after January 1,

1975, ERISA preempts the mechanism for seeking relief. See id. at 970. This reading

of the statute promotes Congress’s goal of providing a federal forum for employee

benefit plan participants. See id. at 972.

      The plaintiffs’ claims accrued at the earliest after 1993, when the Plan was

amended to require co-payment. See Vaughter v. Eastern Air Lines, Inc., 817 F.2d

685, 692 (11th Cir. 1987) (employee benefit claims accrued when participants

“became aware of the facts necessary to make their claims”). Alternatively, their

causes of action accrued even later, when they applied for 100% coverage of their

medications and were denied. See Paris v. Profit Sharing Plan for Employees of

Howard B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir. Feb. 1981) (ERISA “cause of

action does not accrue until an application [for benefits] is denied”). Therefore the

                                             6
plaintiffs must bring their claims under the section of ERISA that creates a cause of

action to recover benefits, enforce plan rights, or clarify entitlement to future benefits.

See 29 U.S.C. § 1132(a)(1)(B).3             Since ERISA “super-preempts” section

1132(a)(1)(B) claims even if they are brought in the guise of state law claims, the

judge properly denied the plaintiffs’ motion for remand. See, e.g., Metropolitan Life

Ins. v. Taylor, 481 U.S. 58, 63-64 (1987) (“any civil complaint raising this select

group of claims is necessarily federal in character”). But that does not end the

analysis.

      The plaintiffs’ substantive rights to retirement benefits, including retiree health

benefits, were created before ERISA existed. ERISA cannot apply retroactively to

govern the rights and responsibilities that attached to the Plan before ERISA’s

effective date. Cast Iron recognizes this, for it argues in its brief that ERISA’s

summary plan description requirements did not apply retroactively to the 1973 plan

booklet. When participants’ rights form before ERISA’s effective date, the court as

a matter of federal common law must interpret the plan “in light of a worker’s pre-

ERISA state law rights.” Woodfork, 642 F.2d at 973. See also Sprague v. General

Motors Corp., 133 F.3d 388 (6th Cir. 1998) (en banc). In discussing liability for

      3
        Although the record is not fully developed, if Cast Iron’s in-house pharmacists
did indeed unreasonably overcharge for prescription drugs, potential additional causes
of action might exist under 29 U.S.C. § 1132(a)(2) or (a)(3).

                                            7
retiree health benefits based on summaries that pre-dated ERISA’s summary plan

description requirements, the Sprague court stated: “If the plaintiffs have any cause

of action based on [pre-ERISA] summaries, it is probably not one based on ERISA.”

Id. at 400. See also Jameson v. Bethlehem Steel Corp. Pension Plan, 765 F.2d 49, 51-

52 (3d Cir. 1985) (“ERISA’s substantive provisions are not to be used to determine

the law at the time of incidents occurring before January 1, 1975.”). In the present

case, the district court erred by applying ERISA substantive law retroactively to pre-

1975 responsibilities. Accordingly, we remand for the district court to consider

whether, under the law applicable to welfare benefit plans when the plaintiffs retired,

Cast Iron promised to cover 100% of the plaintiffs’ drug expenses–and whether that

promise was unalterable and irrevocable.

      Extrinsic evidence may be necessary to illuminate plan documents if they are

ambiguous under state law. Cf. Stewart v. KHD Deutz of Am. Corp., 980 F.2d 698,

702-703 (11th Cir. 1993) (interpreting collective bargaining agreement under the

Labor Management Relations Act and Georgia law: when the agreement promised

benefits “during retirement” but also retained the right to “‘amend, modify, suspend

or discontinue’” employee benefit plans, it was ambiguous). Since discovery will be

necessary to address these issues, the district court abused its discretion in failing to

grant a continuance under Rule 56(f).

                                           8
      Since the court may determine that the Plan could be amended with respect to

the plaintiffs after ERISA’s effective date and that post-ERISA amendments apply to

them, we address the effect of ERISA substantive preemption on the scope of

discovery and the propriety of summary judgment. The district court denied the

plaintiffs’ Rule 56(f) motion for continuance because “[d]iscovery will not take this

action out of the parameters of ERISA.” The court apparently believed that no

amount of discovery could enable the plaintiffs to oppose summary judgment once

ERISA preempted their claims. But even if ERISA does establish the parameters that

govern this action, the plaintiffs are not necessarily dead in the water.

      The plaintiffs allege that written plan documents entitle them to lifetime

benefits and that they have been deprived of those benefits. In addition, they allege

price-gouging by in-house pharmacists. As discussed above, these facts support

claims under 29 U.S.C. § 1132(a)(1)(B) and possibly § 1132 (a)(2) and (a)(3). The

plaintiffs should be allowed to amend their complaint to state ERISA claims4 and to

conduct discovery, at least sufficient for them to review the applicable plan documents

      4
      See Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 976 (5th Cir.
Apr. 1981) (judge abused discretion in failing to grant motion for leave to amend
complaint to state ERISA claims; court can sua sponte allow plaintiff to amend state-
law complaint to state a claim under ERISA).

                                           9
in their entirety, to enable them to oppose Cast Iron’s motion for summary judgment.

      ERISA preempts and does not recognize claims based on oral representations

that contradict unambiguous written plan terms. See, e.g., Alday v. Container Corp.

of Am., 906 F.2d 660, 665-66 (11th Cir. 1990). Accordingly, the need to scrutinize

plan documents in their entirety is crucial, particularly when those documents are in

the exclusive control of the defendant. The plaintiffs’ counsel properly noted this

need in his Rule 56(f) affidavit. In addition, discovery regarding price-gouging and

misrepresentation may be necessary to oppose summary judgment on fiduciary claims.

                                  CONCLUSION

      ERISA provides the exclusive cause of action for the plaintiffs’ claims, which

are based on promises that were allegedly broken in the 1990's, well after ERISA’s

effective date. As a matter of federal common law, however, the district court should

look to state law to answer the substantive question of whether the plaintiffs retired

(before ERISA’s effective date) under a promise to pay lifetime prescription drug

benefits that could not be amended or terminated. The district court should allow

discovery before considering summary judgment against the plaintiffs. Accordingly,

the denial of the motion for remand is AFFIRMED. The grant of summary judgment

                                         10
against the plaintiffs is REVERSED. The denial of the plaintiffs’ motion for

continuance of consideration of summary judgment is REVERSED.

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