Tuesday, February 20, 2018

Has the Supreme Court Finally Put the Nail in the Coffin of Yard-Man?

This morning, the Supreme Court unexpectedly issued yet another decision reversing the Sixth Circuit’s continued application of Yard-Man.  CNH Industrial, N.V. v. Reese, No. 17-515.  As faithful readers know, the Sixth Circuit for decades presumed that a collective bargaining agreement which provided health insurance benefits to retirees was a vested lifetime benefit that could not be altered, modified or eliminated without a bankruptcy court’s intervention.  This resulted in the bankruptcies and closures of numerous companies which provided 100% coverage (i.e., before managed care brought us co-pays, shared premiums, deductibles and approved providers) when the companies were growing but then could not afford such coverage (which can cost more than $20k/employee) when they had fewer employees, fewer and smaller factories and shrinking profits.  As reported here, the Supreme Court held three years ago in M&G Polymers USA LLC v. Tackett that collective bargaining agreements are like all other contracts and that courts should not infer terms into them that the parties did not negotiate themselves.   Duly chastised, the Sixth Circuit then agreed that they would not infer lifetime vested coverage from an agreement’s silence as to the duration of retiree medical benefits, but then in CNH Industrial, a divided court decided that it would still use the silence of the agreement concerning the duration of retiree health benefits to find that agreement to be ambiguous as a matter of law, and thus, enable the retirees to introduce extrinsic evidence (i.e., promises and statements made outside the four corners of the agreement) to prove their entitlement to lifetime, vested medical insurance.  Incredulous, the Supreme Court in a per curiam opinion reversed.  If it is forbidden to infer vested benefits from the silence of a bargaining agreement as to the duration of those benefits, it is likewise forbidden to infer ambiguity from that same silence.

As summarized in the Court’s decision, since 1971, the bargaining agreement provided health insurance to its employees and to those employees who qualified for a pension.   The employer paid 100% of the premiums.  Otherwise, all other benefits terminated on the date of the employee’s retirement.    In 1998, the UAW and employer negotiated new language about retirees being eligible for group medical benefits, without detailing what those benefits were.  However, the retirees were still not required to make any contributions for their medical benefits.   The group medical plan was incorporated into the bargaining agreement and ran concurrently with it.  The agreement expired in three years.  Upon the agreement’s second expiration, a group of retirees brought suit to prevent the employer from modifying the existing health plan (to, for example, require premium contributions, co-pays or deductibles).

After several appeals and the Tackett decision, a divided Sixth Circuit found that the silence of the agreement about when retiree health care benefits terminated (when it mentioned that life insurance and other benefits terminated upon retirement) created an ambiguity. “There is surely a difference between finding ambiguity from silence and finding vesting from silence.”   It explained:

Further, just as the Supreme Court has commanded that we not infer vesting from silence, it has directed us not to infer vesting from the tying of benefits to achievement of pensioner status.  But, as with silence, it has not directed us to ignore tying’s ability to create ambiguity.  Here, healthcare benefits were tied to pension eligibility.  This, by itself, says little about whether those healthcare benefits should vest for life.  It does, however, create an ambiguity about the parties’ intentions.  Inferring vesting from tying alone violates Tackett and ordinary principles of contract interpretation.  Finding an ambiguity from tying allows a court to explore the extrinsic evidence to discover what the parties actually intended.  This, as with silence, does not offend any principle of contract interpretation.  Instead, it moves us closer to the ultimate goal in any contract dispute: discovering the parties’ true intentions.  (emphasis added).

The Supreme Court was not impressed. To find an ambiguity, there must be two plausible interpretations from the language of the agreement.  However, there are no competing interpretations when a court relies on the Yard-Man inference to create one interpretation and the other interpretation is that the retiree benefits – like all other terms and benefits in the agreement – terminate when the agreement does.  The panel’s majority did not quote any contract language or industry practice which created an ambiguity that would treat retiree benefits differently from all of the terms in the agreement.   Further, the panel’s majority could not and did not cite to any other circuit courts which had similarly found contractual ambiguity from the absence of a specific durational clause that applied only to the retiree medical benefits.

Shorn of Yard-Man inferences, this case is straightforward.  The 1998 agreement contained a general durational clause that applied to all benefits, unless the agreement specified otherwise. No provision specified that the health care benefits were subject to a different durational clause. The agreement stated that the health benefits plan “r[an] concurrently” with the collective-bargaining agreement, tying the health care benefits to the duration of the rest of the agreement.  . . . . . If the parties meant to vest health care benefits for life, they easily could have said so in the text.  But they did not. And they specified that their agreement “dispose[d] of any and all bargaining issues” between them.   . . . .   Thus, the only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004. “When the intent of the parties is unambiguously expressed in the contract,  that expression controls, and the court’s inquiry should proceed no further.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.