Rethink Retiree Health Benefits, Supreme Court Tells 6th Circuit

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By Jacklyn Wille

Disputes over health benefits for union retirees must be decided based on ordinary principles of contract law, the U.S. Supreme Court announced for the second time in three years.

The justices Feb. 20 once again rejected the U.S. Court of Appeals for the Sixth Circuit’s way of handling these disputes, which they said was rooted in inferences and assumptions and not the text of the applicable collective bargaining agreements. The result is a victory for CNH Industrial, which was sued for its attempt to modify the health-care benefits it provides for union retirees.

This marks the second time in three years the Supreme Court has addressed union retiree benefits. The court’s 2015 decision in M&G Polymers USA, LLC v. Tackett instructed lower courts to use ordinary principles of contract interpretation when evaluating whether a bargaining agreement provides for vested benefits, including the principle that extrinsic evidence is relevant only when a contract is ambiguous. That decision sparked confusion throughout the Sixth Circuit, given that court’s prior reliance on the “Yard-Man inference.” Yard-Man allowed courts to place a “thumb on the scale” in favor of retirees seeking lifetime benefits.

Clarity in the Law

The Supreme Court’s latest decision was issued by a unanimous court and not attributed to a specific justice. This shows there was “little debate” among the justices over the correct result, said Steven W. Suflas, an employer-side attorney and managing partner of Ballard Spahr’s Denver and Boulder, Colo., offices.

“The justices thought the result was pretty clear,” Suflas told Bloomberg Law. “I think the real surprise is that the Sixth Circuit was so dogged in trying to create inferences to generate lifetime retiree health benefits.”

Bobby R. Burchfield, who represented CNH before the Supreme Court, said he was delighted by the court’s decision and was happy to see even more clarity on this legal issue.

“Clarity in the law is important for employers, obviously, but it’s also important for the unions to know what they have to put into these agreements if they want to get vested benefits,” Burchfield, a partner in King & Spalding’s Washington office, told Bloomberg Law. “It’s also important for retirees so they know how to plan their financial futures. Clarity in the law is very important when it involves retiree health benefits and retiree income security generally.”

Sixth Circuit Rebuked

The Supreme Court’s CNH decision is a rebuke of the Sixth Circuit’s recent case law on retiree health benefits, which one circuit judge called “a mess.” In April 2016, the Sixth Circuit issued a trio of decisions—by three different panels of judges—in cases involving retiree benefit cuts. The court held CNH and Kelsey-Hayes liable for providing certain retirees with vested lifetime benefits, but it allowed Meritor Inc. to modify the benefits it extends to retirees.

In reversing the Sixth Circuit’s CNH decision, the Supreme Court called the lower court’s analysis “Yard-Man re-born, re-built, and re-purposed for new adventures,” a quote from Sixth Circuit Judge Jeffrey S. Sutton’s dissenting opinion in the case. That’s because the CNH agreement at issue contained a general durational clause, or time limit, that applied to all benefits unless otherwise specified, the Supreme Court said.

That clause meant the agreement unambiguously provided that CNH retirees were entitled to company-provided health benefits only until the agreement expired in 2004, and not indefinitely, the Supreme Court said. The Sixth Circuit found otherwise only by using inferences inconsistent with Tackett, the court said.

The Supreme Court’s decision in CNH is largely a restatement of its earlier holding in Tackett, said Joel R. Hurt, a partner with Feinstein Doyle Payne & Kravec LLC who represents unions and retirees.

“It clarifies that courts cannot use the Yard-Man inferences to find an ambiguity in a contract,” Hurt told Bloomberg Law in an email. “However, it also reaffirms that even where there is a general durational clause, a contract may be ambiguous where ‘explicit terms, implied terms, or industry practice’ in support of vesting are present.”

End of Litigation?

Ballard Spahr’s Suflas said this case could end up being the last time the Supreme Court has to weigh in on the health benefits of union retirees.

“In the ‘90s and the first decade of this century, there was a lot of litigation over retiree health benefits, but that train has kind of left the station at this point,” Suflas said. “This seems to be the caboose at the end of this litigation train.”

Suflas said union contracts are increasingly reflecting the type of clear language the Supreme Court is looking for with respect to retiree health benefits.

“The Supreme Court is giving you very clear mileposts, and they’re really looking for express terms that say these benefits are vested or these benefits extend beyond the expiration date of the collective bargaining agreement,” Suflas said. “Absent that terminology, these claims will not be viable.”

Burchfield, the attorney for CNH, said litigation over collectively bargained retiree health benefits may now be on the decline, given how little ambiguity is left in the law.

“The Supreme Court’s decision in Tackett and now this case definitively say what the law is governing vesting of benefits in collectively bargained contracts, and that may have the effect of reducing the amount of litigation on these contracts,” Burchfield said. “There’s only a narrow window that a plaintiff seeking lifetime benefits can now go through, which is limited to finding something in the contract that specifically says they get lifetime benefits.”

McKnight Canzano Smith Radtke & Brault PC, which represented the CNH workers, didn’t respond to requests for comment.

Suflas and Hurt weren’t involved in the CNH case.

The case is CNH Industrial N. V. v. Reese, U.S., No. 17-515, per curiam 2/20/18.

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