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Vested Benefits for Retirees

“Vested Benefits for Retirees: A History and Brief Analysis of Reese v. CNH America LLC, 2:04-cv-70592 (E. D. Mich., March 3, 2011),” by Roger McClow, Klimist, McKnight, Sale, McClow & Canzano, Southfield, Michigan

The Reese litigation has a complex, lengthy history, dating back before February 2004 when CNH America (formerly Case Corporation) sued the UAW in the United States District Court in Wisconsin, seeking a declaration that it had no contractual obligation to provide retiree health care benefits after the termination of the current CBA which was set to expire in May 2004.

In response, five retirees filed a class action against CNH America in Detroit. This case was transferred to Judge Duggan who was then presiding over the companion case of Yolton v. El Paso Tennessee Pipeline Co. and CNH America. Yolton involves retirees who had retired from Case Corporation on or before the July 1, 1994 Initial Public Offering (IPO) of Case stock by its parent Tenneco (now El Paso Tennessee Pipeline Co). Reese involves post-IPO retirees who are and remain the obligation of CNH America.

In August 2004, the Wisconsin district court dismissed CNH’s declaratory judgment action. Judge Duggan then denied CNH’s motion to transfer Reese to Wisconsin.

In January 2006, in Yolton, the Sixth Circuit affirmed the preliminary injunction which Judge Duggan had issued in December 2003 and modified in March 2004. 435 F.3d 571 (6th Cir. 2006).

On August 29, 2007, Judge Duggan granted plaintiffs’ motion for summary judgment in Reese. Relying on the Sixth Circuit’s decision in Yolton, he held that Plaintiffs had vested health care benefits at the level in place at the time of retirement. Judge Duggan entered final judgment on February 15, 2008. CNH appealed.

On June 20, 2008, Judge Duggan granted plaintiffs’ motion for attorney fees. CNH appealed that decision as well. On July 27, 2009, Judge Sutton, in a panel decision, affirmed Judge Duggan’s decision that retiree health care benefits had vested, again relying heavily on the earlier decision in Yolton. 574 F.3d 315 (6th Cir. 2009). However, based on the fact that the UAW and Case had negotiated a managed care plan in 1998 to replace the longstanding Indemnity Plan for existing post-IPO retirees, the panel remanded the case to Judge Duggan for a determination of whether and how CNH could modify the level of retiree health care benefits. The panel rejected CNH’s objections to the attorney fee award but vacated the award anyway, instructing Judge Duggan to review the award in the context of the remand on the merits. The issue of what does vesting mean in the context of the 1998 negotiations had not been raised by CNH before the district court or on appeal. The resulting decision which addresses this issue sua sponte contains broad language that could be read as if the panel had actually determined as a matter of fact and law that CNH had the right to seek reasonable modifications to the retirees’ vested benefits.

For these reasons, plaintiffs petitioned for reconsideration by the panel only (but not for en banc review). The panel denied reconsideration on September 24, 2009. 583 F.3d 955. Judge Sutton wrote a concurrence, disclaiming any intent to engage in appellate fact finding. According to Judge Sutton, the panel simply viewed the evidence in a light most favorable to defendant CNH, as it was required to do. The panel remanded the case to Judge Duggan for a factual determination on the “context” issue. Judge Sutton stated that on remand, the facts on remand might show that plaintiffs should still win as a matter of law if the changes in 1998 “did not diminish the nature of the benefits package that existed upon retirement.” On the other hand, according to Judge Sutton, the evidence might show that CNH should be allowed to make reasonable changes to the health care benefits “consistent with the way the parties have interpreted and implemented prior CBAs containing similar language.” 583 F.3d at 956.

On remand, CNH filed a motion asking Judge Duggan to permit it to make “reasonable” changes to the retiree health care LCC / AFL-CIO[6/1/2012 plan. In reality, the changes CNH sought were similar to those it had proposed in the 2005 negotiations — changes that the UAW had refused to discuss – including the elimination of prescription drug benefits for retirees on Medicare. As expected, CNH argued that the Sixth Circuit had already determined that CNH could modify retiree benefits as long as the proposed changes satisfied the three part test set forth the panel decision which it adopted from Zielinski v. Pabst Brewing Co., 463 F.3d 615, 619 (7th Cir. 2006).

Plaintiffs filed two separate motions for summary judgment. In the first motion, plaintiffs argued: 1) the 1998 negotiations resulted in improvements in the benefit package compared to the prior Indemnity Plan; and 2) even if that were not so, any future changes in retiree benefits must first be agreed upon by the UAW.

In the second motion, directed at a subset of the Class, plaintiffs argued that the 2002 East Moline Shutdown Agreement, by its express terms, prohibited any future changes to the benefit package of persons who retired under the closing agreement.

On March 3, 2011, Judge Duggan issued a decision, granting plaintiffs’ motions and denying CNH’s motions. He reinstated the attorney fee award. Judge Duggan held as a matter of fact and law that the 1998 negotiations resulted in improvements to the benefit package and that the UAW had never bargained reductions in benefits for existing retirees. Judge Duggan also held that, even if this were not the case, the UAW would first have to agree before there could be any further changes to vested retiree benefits.

The significance of Judge Duggan’s decision is that it refutes the idea that the Reese panel decision permits reasonable modifications to vested benefits as a matter of law. Judge Duggan expressly refers to and incorporates Judge Sutton’s concurrence in order to make sense of the context and meaning of Judge Sutton’s decision.

Judge Duggan also points out that the “reasonably commensurate” standard that the Reese panel adopted from Zielinski, arose from an entirely different situation – where the court had to fill gaps because the original benefit agreement could not be found. As Judge Duggan stated, the negotiated 1998 group benefit plan contained forty-one pages of detailed information showing exactly what benefits retirees were entitled to in retirement.

Employers, as CNH did on remand, will certainly cite the unnecessarily broad language in the Reese panel decision for the proposition that, unless a CBA states specifically that retiree benefits cannot be modified in the future, it should be construed to permit reasonable modifications to vested benefits. See 374 F.3d at 326. In reality, this is the result that Judge Sutton has sought since his opinion in Prater v. Ohio Educational Ass’n, 505 F.3d 437, 441 (6th Cir. 2007), where he questioned what the concept of vesting meant even though he acknowledged that his hypothetical questions had nothing to do with the issue before him. Judge Sutton next focused on this issue in his dissent in Noe v. Polyone Corp., 520 F.3d 548, 567 (6th Cir. 2007) (“I still do not know what has vested as a matter of law”). In Reese, Judge Sutton used the 1998 negotiations as the vehicle for inserting this concept of “what does vesting mean in this context?” in his panel decision — a far cry from his prior dicta and dissent.

An example of the underlying danger is Winnett v. Caterpillar, 703 F. Supp. 2d 745, 761 (M.D. Tenn. 2010), where Judge Trager accepted the employer’s argument that Reese stood for the proposition that vested retiree benefits could be modified. On the other hand, Judge Trager required a prior agreement (in an entirely different context than in Reese) between the employer and the union and allowed some but rejected other negotiated modifications.

In addressing Reese, lawyers representing retirees should stress the context of the Reese decision – an appeal from summary judgment where the panel was viewing selected facts most favorably to CNH. Lawyers should also stress that Judge Sutton explained in his concurrence that there was “something different” about the facts in Reese, that is, the 1998 negotiations, that “implicated the question of what vesting means” in that context, a context that was unique from the line of cases beginning with Yard-Man and different even than Yolton. 583 F.3d at 956.

If the Reese decision meant that vested benefits were changeable regardless of the context in which they were negotiated, it would clearly conflict with prior Sixth Circuit decisions, such as Maurer v. Joy Technologies, Inc., 212 F.3d 907, 918 (6th Cir. 2000) (“If benefits have vested, then retirees must agree before the benefits can be modified, even by a subsequent CBA between the employer and active employees.”).

Here are some of the relevant documents in this matter:

  • Decision—LCC Document # 214-003
  • Plaintiffs’ Motion for Summary Judgment (Relating to All Class Members)—LCC Document # 214-004
  • Plaintiffs’ Second Motion for Summary Judgment (Regarding the East Moline Shutdown Agreement)—LCC
  • Document # 214-005
  • Plaintiffs’ Response to CNH’s Motion for Summary Judgment –LCC Document # 214-006
  • Plaintiff’s Response to CNH’s Second Motion for Summary Judgment and Reply in Support of Plaintiff’s First
  • Motion for Summary Judgment—LCC Document # 214-007

There is a lot more to be said about the Reese decisions. I will be happy to discuss the decision with anyone who is facedwith the Reese decision. I can be reached at [email protected].

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