John Morrell & Co. v. United Food and Commercial Workers International Union, Afl-Cio Benard J. Aning, as Representative of a Class

37 F.3d 1302, 1994 WL 553780

• Court: Court of Appeals for the Eighth Circuit
• Decided: January 17, 1995
• Docket: 93-2863
• Status: Published

Opinions

LOKEN, Circuit Judge.

John Morrell & Co. (“Morrell”) and the United Food and Commercial Workers (the “Union”) were parties to “Master” collective bargaining agreements from the 1940’s until April 1, 1989. In 1991, after negotiating a new collective bargaining agreement, Morrell and the Union disagreed over whether the expired Master Agreements obligate Morrell to pay continuing health benefits to hourly employees who retired before April 1, 1989.¹ Morrell commenced this action against the Union and a class of retired hourly employees (the “Class”) seeking a declaration that it may unilaterally modify or terminate those health care benefits. The Union contends that these are vested lifetime benefits, a legal issue governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. (“ERISA”).

After the district court² denied the Union’s motion to compel arbitration, the parties completed discovery and proceeded to trial.³ Following a four-day bench trial, the district court found that the retiree health benefits afforded in the various Master Agreements were limited to the three-year term of each Agreement. Accordingly, the court concluded that those benefits are not contractually vested under the Master Agreements nor legally vested under ERISA and granted Morrell the requested declaratory relief. John Morrell & Co. v. United Food & Commercial Workers Int’l Union, 825 F.Supp. 1440 (D.S.D.1993). The Union and the Class appeal. We affirm.

I. Governing Legal Principles.

ERISA requires that pension plans meet minimum vesting standards. See 29 U.S.C. § 1053. But vesting is not mandatory for “employee welfare benefit plans” — plans that offer the health care benefits here at issue. See 29 U.S.C. §§ 1002(1), 1051(1). An employer may unilaterally modify or ter-mínate health benefits “absent the employer’s contractual agreement to the contrary,” Howe v. Varity Corp., 896 F.2d 1107, 1109 (8th Cir.1990), even if some benefits have been paid, see Meester v. IASD Health Servs. Corp., 963 F.2d 194, 197 (8th Cir.1992). Thus, although ERISA is the governing law, this case turns on whether vested health benefits were contractually conferred in the Master Agreements between Morrell and the Union. The Union has the burden of proof on this issue. See Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1516-17 (8th Cir.1988), cert. denied, 489 U.S. 1051, 109 S.Ct. 1310, 103 L.Ed.2d 579 (1989).

The Master Agreements each contained multiple appendices setting forth various employee benefit plans. For example, Appendix G contained the Supplemental Agreement on Pensions. Consistent with ERISA, Appendix G included vesting provisions and expressly referred to “Vested Pensions.” On the other hand, Appendix F, which contained the health care benefits here at issue, had no express vesting provisions. The Union argues that an intent to confer vested benefits may nonetheless be derived from ambiguous language in Appendix F construed in light of the parties’ lengthy collective bargaining history. The Union shoulders a difficult, though not impossible, burden of persuasion with this argument, since courts are reluctant to read more benefits into an ERISA plan than its plain language confers. See Wise v. El Paso Natural Gas Co., 986 F.2d 929, 937 (5th Cir.), cert. denied, - U.S. -, 114 S.Ct. 196, 126 L.Ed.2d 154 (1993); Howe, 896 F.2d at 1110; DeGeare v. Alpha Portland Indus., Inc., 837 F.2d 812, 816 (8th Cir.1988), vacated and remanded on other grounds, 489 U.S. 1049, 109 S.Ct. 1305, 103 L.Ed.2d 575 (1989).

II. The Collective Bargaining History.

The express terms of an ERISA plan determine the benefits it confers. But the plans at issue were appendices to collective bargaining agreements, and it is usually unwise to construe collective bargaining agreements without regard to their bargaining history. Therefore, before examining the relevant Master Agreement provisions, we will review the negotiating history of those Agreements as it relates to retiree health benefits.

Prior to 1976, Morrell and the Union bargained the issue of health care benefits for retired employees and expressly included such benefits in the Master Agreements. For example, Appendix F to the 1973 Master Agreement provided:

8.12 Retirement: All retirees currently furnished ... coverage and all Employees who retire during the term of the Master Agreement shall be furnished hospital, medical and surgical insurance at Company expense through a plan as provided by the Company.

(Emphasis added.) The 1973 Master Agreement also contained a term clause expressly limiting the duration of the Appendix F benefits:

103. The Hospital-Medical-Surgical Insurance Plan described in Appendix F will remain in effect for the duration of this Agreement.

Each subsequent Master Agreement contained a similar term clause, as well as a general clause limiting the duration of all the Master Agreement’s provisions to its three-year term.

The parties changed § 8.12 of Appendix F in the 1976 Master Agreement by deleting the reference to “All retirees,” so that Mor-rell’s only express undertaking was to provide continuing health benefits for employees who would retire during the term of that Master Agreement. The district court attributed this change to the Supreme Court’s decision in Allied Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 92 S.Ct. 383, 30 L.Ed.2d 341 (1971), that bargaining for retired employees is a permissive rather than a mandatory subject of collective bargaining. Relying on PPG, Morrell took the position in 1976 that previously retired hourly employees were no longer members of the bargaining unit, and the Union acquiesced.

Although the 1976 Master Agreement did not refer to past retirees, the parties negotiated the subject of retiree health benefits. In January 1977, Morrell announced that retired hourly employees would be provided improved health benefits, including a new cost reduction plan for prescription drugs and some Medicare reimbursement. These changes were made retroactive to the effective date of the 1976 Master Agreement, and Morrell subsequently represented to this court that they were made “as a result of union negotiations.”⁴

In 1979, Morrell and the Union negotiated another Master Agreement. Again, health benefits for retirees were discussed but not included.⁵ Instead, Morrell and the Union signed a July 12, 1979, “side letter” reciting that Morrell has no duty to bargain retiree benefits but “has advised the Union that, as a matter of Company policy, the Company intends to announce that effective September 1, 1979, the Company will extend the following benefit programs to retirees currently covered by a Company H.M.S. Plan.” When the 1979 Master Agreement became effective, Morrell wrote existing retirees that it was “pleased to announce an improvement” in their health care benefits. Lee Bishop, who negotiated the 1979 Master Agreement with the Union, testified that Morrell made a significant change to retiree health benefits in 1979:

Prior to this time ... Morrell had engaged in what I would refer to as stairstep' programs for past retirees. In other words, if you retired [in] 1969, you got one set of benefits; and if you retired in 1973, you got a differen[t] set of benefits.... so that we had multiple plans in existence for past retirees. The company’s determination was ... that we would discontinue the stairstep approach and put all the past retirees under the same program.

Although Bishop described these as unilateral changes, Morrell’s brief to this court in Anderson v. John Morrell & Co. stated, “In 1979, as a result of union negotiations, the Company once again retroactively improved the benefits available to union retirees.”

When the 1979 Master Agreement expired in 1982, the Union went on-strike. Morrell terminated health care benefits for the strikers but continued to pay benefits to hourly retirees. After the parties negotiated a new collective bargaining agreement, Morrell reopened negotiations when a major competitor obtained wage and benefit concessions from the Union. In late 1983, the Union accepted lower wages and benefits from Morrell as well, reflected in a new Master Agreement made retroactive to September 1, 1982. Once again, Appendix F provided retirement benefits only for employees who retired during the life of the Agreement.⁶ However, on January 12, 1984, Morrell sent past hourly retirees a letter stating in part:

Dining these negotiations with the Union, the parties agreed that no reductions would be made in retiree pensions.⁷ However, the Company and the Union did agree that your retiree medical benefit program will be modified to provide the same general level of benefits negotiated for active employees for those benefits applicable to retirees.... Benefits have been improved in some areas, particularly as it relates to catastrophic type illnesses. On the other hand, the deductibles and coinsurance have been modified so that you will share in some of the costs covering initial treatments and minor ailments.

* * * * * *

John Morrell & Co. is pleased to be able to continue to provide retirees with a medical benefits plan.

Morrell also sent retirees a Summary of Hourly Retiree Medical Benefit Program that stated, “This Benefit Program is subject to modification and termination in accordance with applicable law.”

When the 1982 Master Agreement expired on September 1, 1985, the Union again went on strike, and Morrell again stopped paying health benefits to striking employees while continuing them for hourly retirees. In the subsequent 1985 Master Agreement, Appendix F made no mention of past retirees, and, like its predecessors, was limited to the duration of the three-year Master Agreement.

In 1987, the Union again went on strike. When the parties negotiated to an impasse in early 1989, Morrell unilaterally implemented new wage and benefit terms. A new collective bargaining agreement went into effect in January of 1991. Morrell sent a memorandum to hourly retirees on March 31, 1991, that included the statement, “The Company reserves its legal right, at its sole discretion, to alter, modify, or terminate any plan or benefit at any time.” The Union responded that any such action “would violate the Union’s applicable collective bargaining agreement as well as the rights of the retirees.” Morrell then commenced this action.

On appeal, each party strives to put a favorable gloss on this long collective bargaining history. Morrell argues that, since 1976, it has carved past retiree health benefits out of the collective bargaining process and treated them as a matter of “employer grace.” But as the above-quoted passages from Morrell’s brief to this court in Anderson v. John Morrell & Co. make clear, the health benefits Morrell provided to hourly retirees prior to April 1,1989, were in fact the product of collective bargaining. They were not included in the Master Agreements, and perhaps they were not collectively bargained in a narrow sense of that term. But as each Master Agreement was negotiated, the Union made requests for improved retiree health benefits, Morrell devised and presented a detailed array of health benefits it would provide to past retirees “as a matter of company policy,” and the Union acquiesced in Morrell’s proposal, either by signing a document like the July 12, 1979, side letter, or by its silence. As Morrell negotiator Lee Bishop admitted at trial, Morrell was aware that it would be harder to negotiate a new Master Agreement for the active employees if the Union was upset with the Company’s treatment of past hourly retirees.

On the other hand, the Union’s view of the collective bargaining landscape is even more distorted. The Union recognizes that the Master Agreements after 1973 made no mention of past retirees and therefore cannot be construed as providing vested benefits to already retired hourly employees. The Union instead argues that each retiree has a vested right to the level of retirement health benefits afforded in the Master Agreement in effect when he or she retired. But that view of the Master Agreements does not square with the parties’ bargaining history.

In every negotiation after 1973, the Union requested improved health benefits for past retirees. Starting in 1979, Morrell eliminated its prior “stairstep” approach — which on its face was consistent with the Union’s vesting argument — and adopted, with at least implicit Union approval, a single health benefits package applicable to all past retirees. Thereafter, prior to the signing of each new Master Agreement, Morrell and the Union negotiated, and Morrell subsequently implemented, a modified health benefits package for past retirees. As Morrell’s January 12, 1984, letter to retirees illustrates, the modifications included both increases and decreases in the level of benefits, yet neither the Union nor any member of the Class ever objected that such changes violated vested rights.⁸

Faced with this inconsistency at oral argument, the Union suggested that each subsequent modification is part of the retirees’ vested benefits. But those modifications were the product of either side deals or unilateral Morrell action, depending upon one’s views of the collective bargaining. They are not to be found in the Master Agreements, which are the basis of the Union’s vesting claims. In short, there is no basis for concluding that later modifications to a retiree’s initial level of health benefits are vested. Rather, the fact that modifications were routinely negotiated is fundamentally inconsistent with the notion that any retirement health benefits were ever vested. See Anderson v. Alpha Portland, 836 F.2d at 1519.

For the foregoing reasons, we conclude that the history of collective bargaining between Morrell and the Union does not support the Union’s claim that hourly retirees’ health benefits are vested. With that background, we turn to the provisions of the Master Agreements as construed by the district court.

III. The Master Agreement Provisions.

The Master Agreements contain many provisions that reflect an intent to confer only non-vested retiree health benefits.

1. The absence of any explicit vesting language in Appendix F is strong evidence of the parties’ intent to limit retiree benefits to the term of the Master Agreement. By contrast, the pension benefits in Appendix G were expressly referred to as vested.

2. As noted above, each Master Agreement contained a term clause expressly limiting the duration of the retirement health benefits contained in Appendix F to the duration of the Master Agreement. We held in Anderson v. Alpha Portland Industries that similar language was inconsistent with an intent to vest health benefits for life: “[i]t would render the durational clauses nugatory to hold that benefits continue for life even though the agreement which provides the benefits expires on a certain date.” 836 F.2d at 1519; see also Bidlack v. Wheelabrator Corp., 993 F.2d 603, 609 (7th Cir.) (en banc) (“employers adamant against assuming perpetual obligations can eliminate all doubt by insisting on a clause that makes any entitlement to health benefits granted by the agreement expire on the date the agreement expires”), cert. denied, — U.S. -, 114 S.Ct. 291, 126 L.Ed.2d 240 (1993).

3. The provision in the 1973 Master Agreement that continued health benefits for past retirees is evidence that prior benefits were not vested. See Anderson v. Alpha Portland, 836 F.2d at 1518-19; DeGeare, 837 F.2d at 816. Likewise, as noted above, Mor-rell’s “unilateral” adoption of a modified health benefits package for past retirees with the signing of each new Master Agreement is evidence that prior benefits were not vested.

4. Appendix F in several of the Master Agreements contained a coordination-of-benefits provision. We have held that such provisions are also inconsistent with vesting. See Anderson v. Alpha Portland, 836 F.2d at 1519.

In the face of this substantial textual evidence that retiree health benefits are not vested, the Union points to relatively little in the Master Agreements to the contrary. First, the Union refers us to § 9.1(b) of Appendix F to the 1979 Master Agreement, a provision that also appeared in the 1982 and 1985 Agreements:

(b) After Retirees Death:

* sfc Hs ‡ ‡

(2) When a Retired Employee dies who has selected a joint and survivor form of pension, the above coverage shall continue for the surviving spouse and dependent children until the earlier of the surviving spouse’s death or remarriage. ...

The Union argues that this language expressly vests an eligible spouse with Appendix F retirement health benefits until the spouse’s death or remarriage. We have previously noted that such language does support the argument that eligible survivor benefits are vested. See Local Union No. 150-A, United Food & Commercial Workers Int'l Union v. Dubuque Packing Co., 756 F.2d 66, 69-70 (8th Cir.1985). But in the context of this case, it is equally plausible to construe this provision as providing that a surviving spouse who is eligible to receive a joint and survivor pension — which is vested — will also receive whatever non-vested retiree health benefits Morrell provides from time to time. Under this provision, the eligible survivor receives only the “above coverage,” which is limited to the three-year term of Appendix F and the Master Agreement. Thus, § 9.1(b) is ambiguous and cannot overcome the other provisions, such as the term clauses, that are inconsistent with vesting.

Next, the Union relies upon two additions to Appendix F in the 1982 and 1985 Master Agreements. First, the preamble to Appendix F in those Agreements stated: “This Agreement ... other than as provided under Section B [the retirement benefits section], shall be subject to termination, modification or extension upon the termination of [the] Master Agreement.” That language, the Union argues without supporting trial testimony, vested all the retirement health benefits contained in Section B. But there is no general reference to vesting in Section B. Rather, there is one specific provision — Article III — that conferred fixed five-year health benefits on “Separation Retirees,” workers between the ages of 50 and 54 who elected a separation pension after a plant closing. Absent extrinsic evidence to the contrary, we believe that the preamble’s exception — “other than as provided under Section B” — was simply a cross reference to the limited vested retirement health benefits conferred in Article III of Section B.

Second, the Union finds an intent to vest retirement health benefits in § 4.1 of Section B in the 1982 and 1985 Agreements:

4.1 The above retirement benefit plan was based upon certain economic conditions in existence at the time such plan was negotiated by the Company and the Union. Therefore, the Company and the Union reserve the right to subsequently alter, modify, increase or reduce the benefits and coverages provided herein, at any time, including subsequent to the Employee’s retirement date, if changes occur in the costs of this .retirement benefit, or if economic conditions of the meat industry or the Company change, but any modification to the plan shall be only upon mutual agreement by the Company and the Union.

The Union construes § 4.1 as meaning that the Union must agree to any modification of retiree health benefits, even after the Master Agreement has expired. Even accepting the Union’s interpretation of this provision, it is further evidence that both Morrell and the Union recognized that retirement health benefits were subject to periodic modification, a recognition inconsistent with the Union’s contention that each Master Agreement conferred vested benefits. Moreover, Morrell’s uncontroverted trial testimony gave § 4.1 a very different meaning — it was an exception to a Company concession not to reopen these Master Agreements prior to their expiration. In other words, § 4.1 was an express recognition by the Union that retirement health benefits could be the subject of additional negotiations before the Master Agreements expired.

From the above, we conclude that both the plain meaning of the Master Agreements, and the collective bargaining context in which they arose, support the district court’s determination that the Class’s retirement health benefits are not contractually vested.

IV. Morrell’s Fiduciaiy Duty.

Finally, the Union argues that even if the Class does not have vested retirement benefits, Morrell would violate its fiduciary duties under ERISA by unilaterally modifying or terminating those benefits. This argument is without merit. ERISA does not bar an employer that is also a fiduciary from exercising its business judgment to modify non-vested welfare benefits. See United Paperworkers Int’l Union v. Jefferson Smurfit Corp., 961 F.2d 1384, 1386-87 (8th Cir.1992).

The judgment of the district court is affirmed.

1 . Like the parties, we will use the phrase "hourly employees” to mean Morrell employees who are represented by the Union. Thus, an hourly employee who retired before April 1, 1989, was covered by a Master Agreement when he or she retired.

2 . The HONORABLE RICHARD H. BATTEY, United States District Judge for the District of South Dakota.

3 . On appeal, the Union argues that we should compel arbitration. However, the Union waived this issue when it did not appeal the denial of its motion to compel arbitration, causing the parties to incur the expense of discovery and a trial on the merits. See Ritzel Communications, Inc. v. Mid-American Cellular Tel. Co., 989 F.2d 966 (8th Cir.1993). A party may not "allow the substantive lawsuit to run its course (which could take years), and then, if dissatisfied with the result, seek to enforce the right to arbitration on appeal from the final judgement.” Cotton v. Slone, 4 F.3d 176, 180 (2d Cir.1993).

4 . This quote is taken from page five of Morrell's March 21, 1986, brief in Anderson v. John Morrell & Co., No. 86-5017-SD, later reported at 830 F.2d 872 (8th Cir.1987).

5 . For example, the 1979 Master Agreement provided that union employees who retired after September 1, 1979, would be covered under Morrell's Vision Plan. This benefit was not extended to previously retired hourly employees until January 1, 1984.

6 . A 1983 Memorandum of Agreement stated that "present retirees ... shall be covered” by Appendix F. The district court found that this referred to employees who retired after the 1979 Agreement expired but before the 1982 Agreement was negotiated.

7 . A disingenuous statement since pension benefits are vested by law under ERISA.

8 . Even if a union collectively bargains benefits for past retirees, "vested retirement rights may not be altered without the pensioner’s consent.” PPG, 404 U.S. at 181 n. 20, 92 S.Ct. at 398 n. 20. Morrell’s modified retiree health benefit plans were never submitted to past retirees for approval, which suggests that neither Morrell nor the Union thought they were modifying vested benefits.