In view of the fundamental shift in the analytical framework for determining the vesting (or not) of lifetime, inalterable retiree health care benefits under a CBA brought by the U.S. Supreme Court’s ruling in M & G Polymers USA, LLC v. Tackett, and the recognition of that change by the Sixth Circuit in Gallo v. Moen Inc., a federal district court in Michigan granted summary judgment for an employer, finding its unilateral change in retiree health care benefits was not unlawful. Here, applying ordinary principles of contract interpretation required the conclusion that no vesting occurred.
Vested retiree lifetime health care benefits. A class of approximately 1,750 retirees and surviving spouses of retirees, who retired from one of BorgWarner’s plant locations between October 27, 1989 and February 23, 2009, filed suit against the employer alleging that it acted unlawfully by unilaterally modifying their health care benefits. The retirees and their spouses claimed a contractual right to lifetime inalterable health care benefits. On February 27, 2014, the district court issued an order permitting the retirees whose health care benefits were unilaterally modified by the employer to proceed to trial on the question of whether those benefits were vested for a lifetime. However, on August 7, 2015, in light of the Supreme Court’s ruling in Tackett, which abrogated long-standing Sixth Circuit precedent regarding claims for vested lifetime health care benefits, the court vacated the February 2014 order.
The court gave the parties the option to file new summary judgment motions under the new interpretative standards decreed by Tackett, or agree to revisit the possibility of a settlement in light of the Tackett ruling. The parties declined to return to the settlement table, but BorgWarner filed a motion seeking summary judgment under the mandate of Tackett.
Retiree benefit liabilities. This dispute began with the negotiation of the parties’1989 collective bargaining agreement. The dispute was driven largely by disagreements related to rising health care costs. BorgWarner sought to reduce its retiree benefit liabilities because of a new set of accounting standards that required, for the first time, that publicly traded companies report their unfunded contractual benefit commitments as a liability. The new standards threatened BorgWarner’s ability to attract new business and to obtain financing. From 1989 to 2009, the parties operated under a series of CBAs that contained similar language relevant to the vesting issue, and eligibility for retiree health care benefits. Additionally, language in each iteration of the parties’ Health Insurance Agreements (HIAs) contained similar language.
Modification of retiree health insurance coverage. In 2006, BorgWarner modified its health insurance coverage and filed an action seeking a declaration that it was permitted to unilaterally alter its health insurance plan prior to expiration of the term of the operative HIA. The court held that the 2005 HIA prevented BorgWarner from unilaterally altering retiree benefits during the contract period, and also denied the company’s request for a finding on the issue of lifetime vesting. On February 26, 2009, when the 2005 HIA expired, the parties executed a plant shutdown agreement. On May 1, 2009, BorgWarner modified health care benefits for all persons who retired from the plant.
New analytical framework. In response to BorgWarner’s renewed motion for summary judgment, the retirees argued that its motion was based on “an over-broad misreading” of Tackett. However, the court rejected the retirees’ reliance on Justice Ginsburg’s concurrence, and disagreed with their interpretation of Tackett as applied here. Rather, the court concluded that Tackett, as recognized by the Sixth Circuit’s ruling in Gallo, represented a fundamental shift in the analytical paradigm for determining the vesting (or not) of lifetime, inalterable retiree health care benefits under a time-limited CBA. When applied to the facts of this case, that new analytical framework required the entry of summary judgment in favor of BorgWarner.
“Ordinary principles of contract law.” Tackett eliminated the use of inferences and implications not grounded in “ordinary principles of contract law.” As a result, the Sixth Circuit in Gallo rejected the argument pressed by the retirees here that the inferences that favored vesting and that governed health care vesting cases in the circuit became part of the fabric of the collective bargaining environment, and therefore would have been assumed by the parties to have applied to these CBAs and HIAs. Ultimately, the Sixth Circuit concluded in Gallo that no vesting occurred.
Guided by Gallo and the similarity of the contract language at issue there to the provisions of the CBAs and HIAs under review in this case, the court was compelled to find that no vesting occurred. Stripped of the now-repudiated Yard-Man inferences, and applying instead ordinary principles of contract interpretation, it was clear that the CBAs and HIAs did not unambiguously promise to provide retirees with lifetime, inalterable health care benefits. Moreover, in this instance, the HIAs did contain a termination of coverage provision that related expressly to the duration of the health care benefits provided under these agreements which purported to limit health care benefits to the duration of each individual HIA.
Accordingly, the court granted BorgWarner’s motion for summary judgment and dismissed the retirees’ complaint.
SOURCE: Sloan v. BorgWarner, Inc., E.D. Mich., No. 09-cv-10918, December 5, 2016.
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