M&G Polymers USA, LLC v. Tackett

Issues 

In determining whether retiree health-care benefits provided under collective bargaining agreements should continue indefinitely, how should courts interpret collective bargaining agreements that are silent on the duration of retiree health-care benefits?

Oral argument: 
November 10, 2014

When interpreting a collective bargaining agreement that is silent on the duration of retiree health-care benefits, the Sixth Circuit inferred that the health-care benefits are vested (and therefore continue indefinitely). This approach, however, differs from the interpretative approach of other federal appellate courts. The Supreme Court will now resolve this circuit split. M&G Polymers USA, LLC argues that health-care benefits should terminate when the collective bargaining agreement ends unless there is a clear and explicit statement that such benefits should continue indefinitely. In opposition, several M&G retirees argue that, notwithstanding contractual silence, the parties’ intent that health-care benefits should continue indefinitely can be presumed. The resolution of this case will impact both the retention of retiree health-care benefits and the operational costs of American companies. 

Questions as Framed for the Court by the Parties 

  1. Whether, when construing collective bargaining agreements in Labor Management Relations Act (LMRA) cases, courts should presume that silence concerning the duration of retiree health-care benefits means the parties intended those benefits to vest (and therefore continue indefinitely), as the Sixth Circuit holds; or should require a clear statement that health-care benefits are intended to survive the termination of the collective bargaining agreement, as the Third Circuit holds; or should require at least some language in the agreement that can reasonably support an interpretation that health-care benefits should continue indefinitely, as the Second and Seventh Circuits hold.
  2. Whether, as the Sixth Circuit has held in conflict with the Second, Third, and Seventh Circuits, different rules of construction should apply when determining whether health-care benefits have vested in pure ERISA plans versus collectively bargained plans.

Facts 

In 1992, Shell Chemical Company (“Shell”) purchased a West Virginia polyester plant from The Goodyear Tire & Rubber Company (“Goodyear”). See Tackett v. M & G Polymers USA, LLC, 733 F.3d 589, 593 (6th Cir. 2013). Shell subsequently sold the plant to M & G Polymers USA, LLC, a producer of polymer and chemical products, in 2000. See Tackett v. M & G Polymers USA, LLC, 853 F.Supp.2d 697, 702 (S.D. Ohio 2012). These companies, during their ownership of the plant, negotiated various labor agreements with a union, Local 644 of the United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union, AFL-CIO (“USW”), who represented the plant’s employees. See Tackett, 733 F.3d at 593. 

These collectively bargained agreements (“CBAs”) stipulated, among other things, that the plant’s employees who acquired sufficient seniority points and retired on or after a certain date would receive “a full Company contribution towards the cost of [health-care benefits].” See Tackett, 733 F.3d at 594. Retirees who did not meet the point requirement received “a reduced Company contribution” and would have to pay the remaining costs. See id. Under these CBAs, various retirees were supposed to receive health-care benefits upon retirement. See id. 

Side letters (“cap letters”) were also included in some of the agreements and capped the maximum average annual company costs per retiree for health-care benefits at a specified dollar amount. See Tackett, 733 F.3d at 593. These cap letters also stipulated that if the health-care benefit costs exceeded the specified maximum costs per retiree, the surplus costs would be split evenly among all retirees. See id. Per the cap letters and similar documents, required contributions from the retirees towards the surplus costs would begin on a specified date. See id. at 595. 

In December 2006, M&G told the retirees that, per the cap letters, all retirees would have to contribute to the cost of their health-care benefits, which exceeded the maximum average annual company costs per retiree. See Tackett, 733 F.3d at 595. Respondents USW and employees Hobert Tackett, Woodrow Pyles, and Harlan Conley (collectively, “Retirees”) filed a class action suit against Petitioners M&G and affiliated health plans (collectively, “M&G”) on February 9, 2007 in the District Court for the Southern District of Ohio (“district court”). See id. The Retirees claimed that their health-care benefits were vested because the CBAs guaranteed a “full contribution towards the cost of [health-care benefits]” so the retirees were not obligated to provide additional contributions. See id. In response, M&G argued that the Retirees did not have a right to vested health-care benefits because the cap letters limited the terms set out in the CBAs. See id. 

The Retirees alleged that M&G’s actions violated the Labor Management Relations Act and Employee Retirement Income Security Act of 1974 (“ERISA”). See Tackett, 733 F.3d at 595. M&G moved to dismiss and the district court granted the motion. See id. The Retirees appealed the dismissal to the Court of Appeals for the Sixth Circuit (“Sixth Circuit”), and the Sixth Circuit reversed the district court’s dismissal and remanded the first two claims. See id. After denying M&G’s motion for summary judgment, the district court, through a bench trial, found in favor of the Retirees. See id. M&G appealed the liability ruling to the Sixth Circuit, but the appellate court affirmed the district court’s finding that the CBAs guaranteed the Retirees vested health-care benefits. See id. at 596, 601. 

After the Sixth Circuit denied a rehearing, M&G appealed to the Supreme Court of the United States. See Petition for Writ of Certiorari, M&G Polymers USA, LLC v. Tackett (2012) at 7. The Supreme Court granted certiorari, in part to determine whether courts should assume that contractual “silence regarding the duration of retiree health-care benefits means that the parties intended those benefits” to continue indefinitely. See Petition for Writ of Certiorari, M&G Polymers USA, LLC v. Tackett (2012) at i. 

Analysis 

The Supreme Court will decide how to interpret a CBA’s silence on the duration of retirees’ health-care benefits. See Brief for Petitioners at i. In doing so, the Supreme Court will likely determine two legal issues: (1) whether a CBA that does not directly state the duration of retiree health-care benefits should be interpreted as vesting the retirees with health-care benefits for life or as allowing the benefits to expire when the agreement expires; and (2) whether different rules of interpretation should apply when determining whether health-care benefits have vested in pure ERISA agreements versus CBAs. See Brief for Petitioners at 12–15, 25; Brief for Respondents at 15–18, 35. 

M&G argues that benefits should expire with the agreement when an agreement does not contain any specific language indicating that the health-care benefits were vested. See Brief for Petitioners, M&G Polymers USA, LLC et al., at 12–15. Conversely, the Retirees contend that benefits should vest when the language of an agreement reflects the parties’ intent that retirees will receive health benefits for the duration of their retirement. See Brief for Respondents, Hobert Freel Tackett et al., at 15–18. Additionally, while M&G also argues that different rules of interpretation should not apply when determining whether health-care benefits have vested in pure ERISA agreements versus CBAs, the Retirees maintain that different rules should apply. See Brief for Petitioners at 25–26; Brief for Respondents at 35.

INTERPRETING THE PROPER DURATION OF RETIREES’ HEALTH-CARE BENEFITS

Both parties agree that ordinary rules of contract interpretation should be applied to CBAs, however they differ regarding how this interpretation should occur. See Brief for Petitioners at 15; see Brief for Respondents at 19.

THE CBA’S DURATIONAL LANGUAGE

M&G asserts that the durational language in the CBA in question is clear and definitively limits the duration of the benefits to extend only until the expiration of the agreement. See Brief for Petitioners at 34–36. M&G argues that the health-care benefits were not intended to continue beyond the duration of the agreement, and that if the benefits had been intended to vest, the parties would have included language specifically regarding vesting similar to the language the parties incorporated regarding pension benefits vesting. See id. at 36–38. 

In opposition, the Retirees contend that the issue of the agreement’s durational language is improperly before the court but that the agreement’s durational language still should not cause the retiree health-care benefits to terminate upon the agreement’s expiration. See Brief for Respondents at 46–49. The Retirees argue that the ordinary rules of contract interpretation require the Court to attempt to determine the parties’ intent by reviewing the agreement’s text while also making inferences based on the context surrounding the agreement and considering relevant extrinsic evidence. See Brief for Respondents at 19–20. They contend that the text of the agreement in question supports the interpretation that the parties intended that the health-care benefits vest. See id. at 52–54.

THE SIXTH CIRCUIT’S APPROACH 

M&G maintains that the Sixth Circuit’s reliance on Yard-Man, a case which also considered the vesting of retiree benefits, was misplaced because it held that health-care benefits are presumptively vested unless there is explicit language stating otherwise. See Brief for Petitioners at 15–16; Int’l Union, United Automobile, Aerospace, & Agricultural Implement Workers of Am. V. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983). According to M&G, a presumption that benefits are vested runs opposite to the ordinary rules of contract interpretation, which require that the plain language of the contract be the primary indicator of the parties’ intent. See Brief for Petitioners at 15–16. M&G also argues that the Sixth Circuit’s presumption is contrary to Congress’ intent and Supreme Court precedent. See id. at 17, 21–25. M&G explains that there is a “baseline rule that the terms of CBAs expire when the agreement does” and that the court’s presumption should be that the benefits expire at the termination of the agreement unless the agreement states otherwise. Id. at 20. 

In opposition, the Retirees argue that M&G’s critique of the Sixth Circuit’s interpretation of Yard-Man is flawed. See Brief for Respondents at 52–54. In defense of Yard-Man, the Retirees assert that the case supports traditional contract interpretation, which includes a standard approach that encourages considering context in order to determine intent. See id. at 53–55.

OTHER CIRCUIT APPROACHES

M&G argues in support of the Third Circuit’s “clear statement” rule, which requires an express statement in the agreement in order to find that benefits are vested. Brief for Petitioners at 25. M&G asserts that this rule aligns with “ordinary rules of contract interpretation, . . . federal labor law, and . . . congressional assessment under ERISA that welfare benefits should not vest unless there is an express agreement that they should.” Id. at 25. In support of this argument, M&G cites Litton, which holds that obligations terminate when the agreement expires, unless the agreement explicitly states otherwise. See id. at 17; Litton Financial Printing Division v. NLRB, 501 U.S. 190, 207–08 (1991). Alternatively, M&G supports the Second and Seventh Circuits’ approach, which is that CBAs must, at minimum, include some language that could be “reasonably interpreted” as indicating the intent that health care benefits vest. See Brief for Petitioners at 30–33. 

The Retirees counter that—unlike the Third Circuit’s rule—the parties’ intent that the health-care benefits vest for life does not need to be explicitly stated in the text of the agreement and can instead be implied. See Brief for Respondents at 21. Furthermore, the Retirees maintain that M&G misrepresented Litton because Litton supports the argument that terms may be implied in the agreement. See id. at 24–26. Moreover, they contend that if the Supreme Court were to adopt the standard set forth by the Second and Seventh Circuits, the agreement in question would be “reasonably susceptible” to the interpretation that health-care benefits were intended to vest. See id. at 38–40. The Retirees explain that the language of the agreement, the surrounding context, and the actions of the parties all support an interpretation of the agreement that is “reasonably susceptible” to the meaning that the parties intended the benefits to continue beyond the the agreement’s expiration. See id. at 40–46. 

INTERPRETING ERISA AGREEMENTS VS. COLLECTIVE BARGAINING AGREEMENTS

M&G argues that different rules of interpretation should not apply when determining whether health-care benefits have vested in pure ERISA agreements versus CBAs. Brief for Petitioners at 25–26. They contend that Congress evaluated retiree health-care benefits under ERISA and determined that such benefits should not vest unless the parties make “an express agreement that they should.” See id. M&G points out that that Congress made a specific determination to exempt retiree health-care benefits and other welfare benefits from the vesting requirements that Congress imposed on pension benefits in ERISA. See id. at 4–5. In light of this fact, M&G asserts that ERISA reflects congressional recognition that welfare benefits should be flexible and involve fewer administrative and cost burdens than those associated with mandatory vesting. See id. at 5–6.

The Retirees however, argue that different rules of interpretation should apply when determining whether health-care benefits have vested in pure ERISA agreements versus CBAs. See Brief for Respondents at 35. According to the Retirees, Congress’ decision not to impose a mandate that retiree health-care benefits be automatically vested under ERISA agreements does not mean that Congress decided there must be an explicit agreement before health-care benefits could vest under CBAs. See id. The Retirees point out that the pension requirements that Congress imposed under ERISA are law and eliminate the need to determine the parties’ intent. See id. at 35–37.  However, the Retirees maintain that this does not limit parties’ rights to use CBAs to establish health-care benefits and their duration or impose a requirement that such an agreement be expressed explicitly. See id. 

Discussion 

In this case, the Supreme Court has an opportunity to resolve a circuit split on whether employers owe vested health-care benefits to retirees through collective bargaining agreements, which are silent on the duration of such benefits. See Petition for Writ of Certiorari, M&G Polymers USA, LLC v. Tackett (2012) at 10. M&G contends that, unless there is a clear and explicit statement that such benefits should continue indefinitely, health-care benefits should terminate when the collective bargaining agreement ends. See Brief for Petitioners, M&G Polymers USA, LLC et al. at 12–15. The Retirees counter that, notwithstanding contractual silence, the parties’ intent that health-care benefits should continue indefinitely can be presumed. See Brief for Respondents, Hobert Freel Tackett et al., at 15–18. The Supreme Court’s determination implicates the retention of retiree health-care benefits as well as operational costs of American companies. See Brief for Petitioners at 28; Brief for Respondents at 29; Brief of Amici Curiae of The Chamber of Commerce of the United States et al. (“Chamber of Commerce”), in Support of Petitioners at 11; Brief of Amicus Curiae Fox Retiree Committee et al., in Support of Respondents at 1, 3; Brief of Amici Curiae of Labor and Benefits Law Professors, in Support of Respondents at 4. 

EMPLOYER BURDEN OR EMPLOYEE BENEFIT?

Amici in support of M&G argue that the Third Circuit approach would prevent unbargained-for obligations on employers to provide vested health-care benefits and achieve greater uniformity of health-care plans in different jurisdictions. See Brief of Chamber of Commerce at 11; Brief of Amicus Curiae National Association of Manufacturers, in Support of Petitioners at 18; Brief of Amici Curiae Whirlpool Corporation, in Support of Petitioners at 20–21. Moreover, the amici contend that a presumption of vesting gives a judicially created advantage to unions, incentivizing unions to avoid negotiating about the issue. See Brief of Chamber of Commerce at 11; Brief of Amicus Curiae National Association of Manufacturers, in Support of Petitioners at 30. Specifically, the Chamber of Commerce asserts that, without a clear and express statement approach, employers would have to bear the burden of demonstrating that they should not be liable for benefits that will continue indefinitely. See Brief of Chamber of Commerce at 12–14.        

The Retirees and supporting amici contend that the Third Circuit approach of requiring a clear and explicit statement that health-care benefits should continue indefinitely would deprive retirees of the health-care benefits to which they are entitled. See Brief for Respondents at 29; Brief of Amicus Curiae Fox Retiree Committee et al., in Support of Respondents at 1, 3. The American Federation of Labor and Congress of Industrial Organizations in support of the Retirees emphasize that retiree health-care benefits should not end when the collective bargaining agreement expires because these benefits are often considered as a type of deferred compensation that employees earned during the length of the CBA. See Brief of Amicus Curiae The American Federation of Labor and Congress of Industrial Organizations ("AFL-CIO"), in Support of Respondents at 16–17. Amici in support of the Retirees also argue that following the Third Circuit approach would allow employers, despite evidence demonstrating that the parties intended for the health-care benefits to continue indefinitely, to unilaterally decide when to stop providing vested health-care benefits. See Brief of Fox Retiree Committee et al. at 37–38; Brief of AFL-CIO at 4.

OPERATIONAL COSTS OF AMERICAN BUSINESSES

M&G and supporting amici argue that adopting the Sixth Circuit approach of inferring vested health-care benefits in contractual silence will impose excessive, unanticipated, and retroactive costs on companies. See, e.g., Brief for Petitioners at 28; Brief of Chamber of Commerce at 17. Numerous amici maintain that current retirees will be able to bring suits against their companies to demand unstipulated benefits, which would negatively impact the financial stability of American companies and potentially cause some to declare bankruptcy. See e.g., Brief of Chamber of Commerce at 19–20; Brief of Amicus Curiae National Association of Manufacturers, in Support of Petitioners at 27. Additionally, the Chamber of Commerce contends that these enormous and rising health-care costs will affect American companies’ ability to compete in the international marketplace and drive up costs of products and services to consumers. See Brief of Chamber of Commerce at 17. The Chamber of Commerce explains that this could also ultimately negatively impact the wages and retiree benefits for current employees. See id. at 17.   

Amici in support of the Retirees counter that many employers, notwithstanding the cost of providing health-care benefits, may be motivated by various factors to provide vested health-care benefits. See Brief of Amici Curiae of Labor and Benefits Law Professors, in Support of Respondents at 4; Brief of Fox Retiree Committee et al. at 1, 3. Some professors of labor and employee benefits law argue that many employers have historically provided full health-care coverage to retirees as a tool to gain leverage in the collective bargaining process and to incentivize older employees to voluntarily retire earlier without violating the Age Discrimination in Employment Act of 1967. See Brief of Labor and Benefits Law Professors at 11, 18, 21. Further, the Fox Retiree Committee and supporting organizations contend that providing retiree health-care allows companies to attract and keep stellar workers. See Brief of Fox Retiree Committee et al. at 1, 3.

Conclusion 

The Supreme Court will likely resolve a circuit split by determining whether retiree health-care benefits may vest for life absent an explicit statement of the duration of such benefits in a collective bargaining agreement. This decision will impact the functioning and contracting practices of American companies and could have a significant impact on the health-care benefits available to retirees across the country. 

Edited by 

Acknowledgments 

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