Harper Woods Retirees Association v. City of Harper Woods
879 N.W.2d 897
Mich. Ct. App.
2015
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HARPER WOODS RETIREES ASSOCIATION v CITY OF HARPER WOODS

Docket No. 318450

Court of Appeals of Michigan

Submitted February 4, 2015. Decided October 1, 2015.

312 MICH APP 500

Harper Woods Retirees Association and various individuals who have retired from employment with the city of Harper Woods brought an action for breach of contract against the city in the Wayne Circuit Court, claiming that defendant improperly made unilateral changes to their health insurance benefits. The court, Susan D. Borman, J., granted plaintiffs’ motion for class certification but failed to identify the members of the class. The court also granted defendant‘s motion for summary disposition, relying on a Sixth Circuit Court of Appeals case that authorized employers to unilaterally alter retirees’ vested health insurance coverage if the alterations are reasonable. The court granted defendant‘s motion because plaintiffs had failed to address the issue of reasonableness. Plaintiffs appealed in the Court of Appeals, which retained jurisdiction over the case and remanded it to the trial court with instructions to identify the class members and to provide them with the notice required under MCR 3.501(C). The class members were identified and given notice, and the Court of Appeals addressed plaintiffs’ remaining arguments on appeal.

The Court of Appeals held:

1. The trial court erred by granting defendant‘s motion for summary disposition because an employer cannot unilaterally modify vested health insurance benefits provided to retirees under a collective bargaining agreement (CBA) or personal contract. The trial court based its decision on the ruling in . Federal circuit court decisions are not binding on state courts, and therefore, the trial court was not obligated to follow Reese‘s holding. In addition, Reese‘s conclusion that unilateral alterations to retirees’ vested health insurance benefits were permitted as long as the alterations were reasonable occurred in a case in which the evidence indicated that the parties intended to permit such alterations. Parties must be able to rely on the contractual language of the agreement to which they mutually assented.

2. A retiree‘s vested rights may not be altered without the retiree‘s consent. A right is vested when the retiree can show that (1) he or she had a contractual right to the claimed benefit that was to continue after the agreement‘s expiration and (2) the right was included in his or her respective contract at the time of retirement. However, the presumption that retirement benefits vest for the lifetime of a retiree violates the traditional rules of contractual interpretation. Traditional rules of contractual interpretation apply to collective bargaining agreements and the provision and duration of retirees’ health insurance benefits. The duration of a retiree‘s benefits and the benefits to which the retiree is entitled depend on the language used in the CBA or personal contract under which the retiree claims the benefits.

3. Whether a retiree should continue to receive health insurance benefits, and the type of benefits he or she should receive, depends on the language of the CBA or personal contract under which the retiree was given the benefits. The case was remanded for the trial court to identify the specific CBA or personal contract under which each member of the class claims his or her health insurance benefits. The trial court must then apply ordinary contract principles to determine (1) whether the parties intended the healthcare benefits in each agreement to survive after the agreement expired or (2) whether the retiree‘s healthcare benefits terminated after the agreement expired so that defendant was permitted to alter the retiree‘s benefits under future contracts.

4. Plaintiffs claimed that a question of fact existed regarding whether defendant was in a state of financial crisis at the time it altered the retirees’ health insurance coverage, but the trial court did not address this argument, which rendered it unpreserved. Even so, the reason why a breaching party failed to fulfill its contractual obligations is not an element in a breach of contract claim.

5. Plaintiffs’ claim that defendant violated city ordinances when it altered retirees’ healthcare benefits was not included in plaintiffs’ statement of the questions presented, and therefore, the claim was not properly presented for appellate review.

Reversed and remanded.

CONTRACTS - COLLECTIVE-BARGAINING AGREEMENTS - RETIREES - HEALTHCARE BENEFITS.

An employer cannot unilaterally modify a retiree‘s vested health insurance benefits; alterations of a retiree‘s vested health insurance benefits are governed by traditional principles of contractual interpretation and the contractual language in the collective-bargaining agreement or personal contract under which the retiree claims the benefits.

Mark A. Porter & Associates (by Mark A. Porter) for plaintiffs.

Bellanca LaBarge PC (by Sharon A. DeWaele) for defendant.

Before: FORT HOOD, P.J., and JANSEN and GADOLA, JJ.

GADOLA, J. Plaintiffs appeal as of right from the trial court‘s order granting defendant‘s motion for summary disposition under MCR 2.116(C)(8) (failure to state a claim) and MCR 2.116(C)(10) (no genuine issue of material fact). We reverse and remand for further proceedings consistent with this opinion.

I. FACTS

The Harper Woods Retirees Association (HWRA) is a nonprofit corporation composed of individuals who were once employed by defendant, and who retired between the 1980s and early 2000s. The individually named plaintiffs are retirees who hold the following positions within the HWRA: Jeffrey Manor, president; James Manor, treasurer; Judith DeKeyser, secretary; and Donald Kuczborski, trustee. According to plaintiffs’ complaint, members of the HWRA obtained vested healthcare benefits through multiple collective bargaining agreements (CBAs) and personal contracts with defendant. These agreements identified specific health insurance plans, riders, and prescrip-tion drug co-pays available to retirees.1 Plaintiffs alleged that retirees previously received Blue Cross Blue Shield of Michigan (BCBS-M) “Traditional,” “Master Medical,” or “Community Blue-1” insurance plans,

which guaranteed either no deductibles for treatment or “first dollar” deductibles of approximately $10 for office visits. Plaintiffs also claimed that some of their original health plans had a $2 deductible for generic prescriptions and a $5 deductible for name brand prescriptions.

On April 12, 2012, defendant announced plans to unilaterally alter its retirees’ healthcare coverage. According to plaintiffs’ complaint, defendant sought to move retirees under the age of 65 into a BCBS-M “Community Blue-2” insurance plan, and retirees over the age of 65 into a BCBS-M “Medicare Advantage, Mid-Option” insurance plan. Plaintiffs alleged that the new plans “would include co-pays and deductibles amounting to $1,000.00 to $1,500.00 per year, per retiree” and would require retirees who previously paid $2 and $5 co-pays for their prescriptions to pay $5 for generic prescriptions and $20 for name brand prescriptions.

In June 2012, individual retirees established the HWRA to oppose defendant‘s proposed changes. However, following two meetings between defendant and the HWRA, defendant maintained that its retiree healthcare benefits expired at the term end of the relevant CBAs, giving defendant the discretion to alter retiree health insurance coverage. On July 9, 2012, the city council approved defendant‘s alterations, and on August 1, 2012, the changes became effective.

The City agrees to pay the premium of the retirees for the Blue Cross Blue Shield Plan listed above except such plan shall be traditional rather than PPO, and to provide additional coverage for the employee‘s spouse. . . .

The prescription drug rider for all retirees shall be a $ 2.00 co-pay plan.

In October 2012, plaintiffs filed a complaint alleging breach of contract including violation of the Contract Clauses of the United States Constitution. Plaintiffs sought a declaration that defendant breached its contracts, an injunction against further alteration of retiree benefits, and an order returning to retirees their previous health insurance coverage. Plaintiffs also sought class certification for the 88 members of the HWRA. The trial court initially refused to certify the membership of the HWRA as a class. However, following a motion hearing on June 28, 2013, the court instructed plaintiffs to reintroduce their motion for class certification, and instructed defendant to bring a motion for summary disposition on the question of whether a municipality may unilaterally alter the healthcare benefits of its retired employees.

At a hearing in September 2013, the court addressed both motions. First, the court granted plaintiffs’ motion for class certification in part, defining the certified class to include all of defendant‘s employees who (1) were covered by a CBA at the time of retirement, or (2) had a personal contract with defendant at the time of retirement. However, the trial court did not identify the specific persons included in the class certification. Next, addressing defendant‘s motion for summary disposition, the court relied on the holding of the United States Court of Appeals for the Sixth Circuit in to conclude as a matter of law that employers may unilaterally alter retirees’ health insurance coverage provided in a CBA if the alterations are reasonable. Because plaintiffs had not challenged the reasonableness of defendant‘s health insurance alterations, the trial court granted defendant‘s motion.

Plaintiffs appealed as of right in this Court the trial court‘s summary disposition order. On appeal, plain-tiffs argued that the lower court erred by granting defendant‘s motion for summary disposition, and that it failed to provide proper notice to class members after certifying the case as a class action. We held oral argument on the matter on February 4, 2015. Shortly thereafter, we issued an order remanding the case for the limited purpose of identifying the members of the certified class and providing them notice in compliance with MCR 3.501(C).2 Harper Woods Retirees Ass‘n v City of Harper Woods, unpublished order of the Court of Appeals, entered February 13, 2015 (Docket No. 318450). In July 2015, the trial court submitted an order on remand certifying the class and identifying the class members. Now that the members of the class have been identified, we address plaintiffs’ remaining arguments on appeal.

II. STANDARD OF REVIEW

We review de novo a trial court‘s decision on a motion for summary disposition. . Defendant moved for summary disposition under both MCR 2.116(C)(8) and MCR 2.116(C)(10), and the trial court did not specify under which rule it decided the motion. However, because the court decided defendant‘s motion on purely legal grounds without referring to evidence outside the pleadings, we review the motion under MCR 2.116(C)(8).3

; see also MCR 2.116(G)(5). “A motion under MCR 2.116(C)(8) tests the legal sufficiency of the complaint.” . When reviewing the motion, courts must accept as true all well-pleaded factual allegations within the complaint. . A decision granting a motion under MCR 2.116(C)(8) is proper if the claims alleged are “so clearly unenforceable as a matter of law that no factual development could possibly justify recovery.” Id. at 163. We review de novo questions regarding the interpretation of a contract. , aff‘d, .

III. DISCUSSION

Plaintiffs first argue that the trial court erred by granting defendant‘s motion for summary disposition after concluding that under , defendant could unilaterally modify any health insurance benefits provided to retirees under its CBAs or personal contracts, regardless whether the rights had vested, as long as the modifications were reasonable. We agree.

In Michigan, “[t]he foundational principle of our contract jurisprudence is that parties must be able to rely on their agreements[, and this] applies no less strongly to collective bargaining agreements . . . .”

. “A collective bargaining agreement, like any other contract, is the product of informed understanding and mutual assent.” . When contractual language is unambiguous, courts must interpret and enforce the language as written because an unambiguous contract reflects, as a matter of law, the parties’ intent. . “[T]he principle of freedom to contract does not permit a party unilaterally to alter [an] original contract.” . Rather, when the alteration of a provision in a CBA “affects vested rights already accrued[, the change] may give rise to a cause of action in contract.” (involving a change in compensation policy for work already performed).

The trial court erred by concluding as a matter of law that defendant could unilaterally alter the health insurance benefits provided under its CBAs and personal contracts. Generally, unilateral alteration of contracts is prohibited because “mutuality is the centerpiece to waiving or modifying a contract . . . .” .4 The trial court also erred by holding that the reasonableness of defendant‘s proposed alterations, in light of the city‘s alleged financial

crisis, was a proper basis on which to permit or refuse enforcement of the contractual provisions at issue. In Michigan, “[a] mere judicial assessment of ‘reasonableness’ is an invalid basis on which to refuse to enforce contractual provisions.” . Further, rising medical insurance costs and the city‘s financial situation are irrelevant to the inquiry because the fact that a contractual obligation “proved to be more onerous . . . than anticipated is no defense.” .

By ruling that defendant could unilaterally alter any of its retirees’ healthcare benefits as a matter of law, the trial court found the Sixth Circuit‘s decision in , controlling. In Reese, retirees brought suit against their employer seeking a declaration that they were entitled to lifetime health insurance benefits under their CBAs and an injunction preventing their employer from altering the level of healthcare benefits then in effect. The Sixth Circuit held that when an employer and its retirees “did not perceive the relevant CBAs as establishing fixed, unalterable benefits,” an employer “could make ‘reasonable’ changes to the healthcare plan covering eligible retirees.” Id. at 684. The court described “reasonable” alterations as those that are “reasonably commensurate” with the former insurance plan, those that are reasonable considering what medical care is currently available, and those that provide benefits roughly similar to the benefits provided to current employees. Id. at 685. The court then offered a nonexhaustive list of factors for the trial court to consider when determining if alterations are reasonable. Id. at 685-686.

In this case, the trial court was not bound to follow Reese. “Although lower federal court decisions may be

persuasive, they are not binding on state courts.” . Further, Reese does not stand for the proposition that an employer may always unilaterally alter its retirees’ healthcare benefits under a CBA, regardless of the CBA‘s specific language, as long as the alterations are reasonable. Rather, the Reese court indicated that a retiree‘s right to health insurance benefits under a CBA could be unilaterally altered if evidence indicated the parties intended to permit such alterations, not because vested health insurance benefits under a CBA are unilaterally alterable as a matter of law.5 Thus, defendant and the trial court erred by interpreting Reese as establishing an absolute right for employers to unilaterally alter health insurance coverage for retirees.

Although the trial court erred in concluding that an employer may, as a matter of law, unilaterally alter any health insurance benefits included in a CBA or personal contract as long as the alterations are reasonable, the preliminary question remains whether plain-

tiffs had vested rights to the health benefits they now claim. “Under established contract principles, vested retirement rights may not be altered without the [retiree]‘s consent.” , quoting (alteration omitted). However, in order to demonstrate that a benefit conferred in a CBA or personal contract is deemed vested, a retiree must show that (1) he or she had a contractual right to the claimed benefit that was to continue after the agreement‘s expiration, and (2) the right was included in his or her respective contract at the time of retirement. See .

Plaintiffs suggest that their right to the specific healthcare benefits included in their CBAs and contracts continued indefinitely after retirement, regardless whether the explicit terms of the contracts indicated that the parties intended those benefits to continue after the agreements expired. Such a position is inconsistent with ordinary principles of contract law.

In , the United States Supreme Court rejected the Sixth Circuit‘s decision in , which held that in the absence of contrary extrinsic evidence, courts should presume that retiree benefits provided in a CBA are guaranteed for the lifetime of any employee who retires under the CBA. The Yard-Man court “inferred that parties would not leave retiree benefits to the contingencies of future negotiations, and that retiree benefits generally last as long as the recipient remains a retiree . . . [which] ‘outweigh[ed] any contrary implications derived from a routine duration clause terminating the agreement

generally.‘” , quoting (second alteration in original). Thus, although the Yard-Man court recognized that “traditional rules of contractual interpretation require a clear manifestation of intent before conferring a benefit or obligation,” the court concluded that the duration of the conferred benefit was not subject to this conventional restraint. (quotation marks and citation omitted).

In Tackett, the Supreme Court overruled Yard-Man, holding that the presumption that retirement benefits vest for the lifetime of a retiree violates traditional rules of contract interpretation. The Supreme Court explained that under traditional contract interpretation principles, “courts should not construe ambiguous writings to create lifetime promises,” and that generally, “‘contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.‘” , quoting . The Supreme Court noted that traditional contract principles do not “preclude the conclusion that the parties intended to vest lifetime benefits for retirees” because “a collective-bargaining agreement [may] provid[e] in explicit terms that certain benefits continue after the agreement‘s expiration.” (quotation marks and citation omitted; alterations in original). However, “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.” Id. at 442; 135 S Ct at 937. We conclude that the Supreme Court‘s reasoning in Tackett is consistent with Michigan‘s contract jurispru-dence regarding CBAs, which applies with equal force in both the public and private sectors. As our Supreme Court has explained:

The foundational principle of our contract jurisprudence is that parties must be able to rely on their agreements. This principle applies no less strongly to collective bargaining agreements: when parties to a collective bargaining agreement bargain about a subject and memorialize the results of their negotiation in a collective bargaining agreement, they create a set of enforceable rules-a new code of conduct for themselves-on that subject. A party to the collective bargaining agreement has a right to rely on the agreement as the statement of its obligations on any topic covered by the agreement. [ (quotation marks and citations omitted).]

The task, then, is to examine each of the CBAs and personal contracts in effect at the time of each respective class member‘s retirement, and to determine (1) whether the language governing retiree healthcare benefits indicates that the parties intended the same benefits to continue after expiration of the agreements or (2) whether the benefits terminated after expiration of the agreements, so that defendant was permitted to alter the benefits under future contracts. See . Below, plaintiffs attached excerpts of 33 CBAs and six purported personal contracts to their response to defendant‘s motion for summary disposition. The trial court did not address any of these agreements when issuing its decision granting summary disposition to defendant; instead, the court ruled that alteration of health insurance benefits was appropriate as a matter of law as long as the alterations were reasonable. At the time, the members of the class had not been identified. In fact, they were only identi-fied in an order from the trial court dated July 27, 2015, following the remand from this Court.

There is currently no evidence before us indicating which contracts apply to which class members based on the members’ retirement dates, whether all the relevant CBAs are included in the record, and whether additional provisions in the CBAs beyond the excerpts included below are necessary to properly interpret the relevant contractual provisions. Accordingly, the lower court record has not been sufficiently developed to permit this Court to engage in an independent review of the obligations contained in each of the agreements. Therefore, we remand this case to the trial court for further proceedings consistent with this opinion.

On remand, we instruct the trial court to determine which contract applies to each individual class member, and then to apply ordinary contract principles to determine (1) whether the parties intended the retiree healthcare benefits identified in each respective agreement to survive the expiration of the CBA or (2) whether the retirees’ rights to the specifically identified healthcare benefits terminated upon expiration of the agreement, so that defendant was permitted to alter the benefits under future contracts.6

IV. UNPRESERVED CLAIMS

Finally, plaintiffs argue that the trial court erred by granting defendant‘s motion for summary disposition because a question of fact existed regarding whether

defendant was in a state of financial crisis at the time it altered plaintiffs’ health insurance coverage. The lower court did not address this issue in deciding defendant‘s motion for summary disposition, rendering it unpreserved. . The reason why a breaching party failed to fulfill its contractual obligations is not an element in a breach of contract claim. See . Because defendant‘s financial status was irrelevant to whether it breached its contractual duties, we choose not to address the parties’ arguments regarding this issue on appeal.

Plaintiffs further argue that defendant violated city ordinances by altering retirees’ healthcare benefits. However, this issue was not raised in plaintiffs’ statement of the questions presented. Issues not specifically raised in an appellant‘s statement of questions presented are not properly presented to this Court. . Accordingly, we also decline to address this issue.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

FORT HOOD, P.J., and JANSEN, J., concurred with GADOLA, J.

Notes

1

Plaintiffs attached three CBAs to their complaint. The January 1, 2004 through December 31, 2006 CBA between defendant and the International Association of Firefighters, Local No. 1188, AFL-CIO stated the following:

For any employee covered by this Agreement and his dependents, the City will pay the full cost of Blue Cross Preferred Provider Organization (PPO) Comprehensive Hospital Semi-Private Service with Riders D45NM, MM, ML, IMB, DCCR, Blue Shield MVF-1 service with $2.00 prescription drug program, and out of state reciprocity rider. Effective August 1, 1998, the prescription drug rider shall be $10.00.

Upon an employee‘s retirement from employment by the City, and during the period of his retirement thereafter, . . . the City will pay the full cost of the above health care insurance coverages for such retiree and his spouse, until each has reached age 65 and, from and after his reaching age 65, shall pay the full cost of his Blue Cross/Blue Shield Care Insurance Plan which supplements his own Medicare Health Care coverage.

* * *

For retirees and their spouses, the insurance coverage shall continue to be the existing Traditional BCBS plan (#63049/905), provided however that for those employees retiring on or after October 1, 2005, the prescription co-pay shall be increased from $2 to $5.

The 2000 through 2002 CBA between defendant and the American Federation of State, County and Municipal Employees, Local No. 1107, stated the following:

[F]or all retirees from the City‘s service who were members of this Local at the time of retirement from the City, the City will pay, during the term of this agreement, the full cost of Blue Cross Comprehensive Hospital, Semi-Private, Preferred Provider Organization, Service with Riders D, D45NM, MM, ML, Pap Smear and Ten Dollar ($10.00) Prescription Drug Program Rider and of Blue Shield MVF-1 Service.

The January 1, 2000 through December 31, 2002 CBA between defendant and the Police Officers Labor Council (Command Officers Unit) stated the following:

2
We also instructed the parties to submit supplemental briefing on the vesting of retirement benefits in light of the United States Supreme Court‘s recent decision in .
3
In contract-based actions, any contracts attached to the complaint are considered part of the pleadings. ; see also MCR 2.113(F)(2). Plaintiffs attached excerpts of 33 CBAs and six personal contracts to their response to the motion for summary dispo-
4
As a matter of law, the presence of a modification clause in a written contract also raises a presumption that a contract may not be modified absent mutual assent. See . Although plaintiffs did not attach the entirety of each CBA to their complaint, at least one of the attached CBAs includes a modification clause providing that the agreement would remain in full force and effect absent written notice, renegotiation, and “agreement upon a new contract.”
5
The Sixth Circuit also adopted this interpretation of Reese in (“[In Reese,] the scope of the vested right to health care could be unilaterally altered because that is what the evidence indicated the parties intended in that case, not because all vested health care rights in all CBAs are subject to unilateral alteration as a matter of law.“). The Sixth Circuit recently vacated its decision in United Steel on other grounds and remanded the case to the district court for reconsideration in light of Tackett‘s overruling of . . In , the United States Supreme Court overruled Yard-Man, concluding that a judicially created inference that parties intended benefits under a CBA to vest for life upon retirement was inconsistent with ordinary principles of contract law.
6
We emphasize that the outcomes, i.e., whether a retiree‘s right to specific health insurance coverage extends beyond the expiration of the agreement under which he or she retired, may not be the same for each CBA and personal contract. Rather, the outcomes must be dictated by the application of traditional principles of contract interpretation to the language of each respective agreement.
cont
sition. The trial court did not consider these contracts in deciding the motion for summary disposition. Rather, the court concluded that, as a matter of law, an employer could unilaterally alter retiree healthcare benefits found in a CBA or personal contract if the alterations were reasonable.
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