Lou BLAND, Edward Hodgeman, Geraldine Rosato, Ervin Shores, and Richard Horcher, Plaintiff-Appellants,
v.
FIATALLIS NORTH AMERICA, INC., Case New Holland, Inc., and CNH Health and Welfare Plan, Defendants-Appellees.
No. 04-2703.
United States Court of Appeals, Seventh Circuit.
Argued January 19, 2005.
Decided March 15, 2005.
Jon D. Robinson (argued), Bolen Robinson & Ellis, Decatur, IL, for Plaintiff-Appellants.
Mark A. Casciari (argued), Seyfarth Shaw, Chicago, IL, for Defendants-Appellees.
Before CUDAHY, MANION and EVANS, Circuit Judges.
CUDAHY, Circuit Judge.
A "lifetime" can be a slippery concept in the context of retiree benefits litigation under the Employee Retirement Income Security Act ("ERISA"), 42 U.S.C. §§ 1001 et seq. (2005). This case asks us to consider, on the heels of Vallone v. CNA Financial Corporation,
I.
The plaintiffs in the present case are former retired salaried and hourly employees of Fiatallis North America, Inc. ("FANA"), who retired in the late 1970s through 1988 and their surviving spouses. Most are at least eighty years of age and are presumably on fixed incomes. Before or upon their retirement, each of the plaintiffs received documents known as "summary plan descriptions" ("SPDs") that described the medical and dental benefits that they would receive and that allegedly contained explicit promises that retirees and their spouses would continue to receive these benefits at little or no cost until their death.
Of the five SPDs at issue in this case, three refer to salaried employees, and two address hourly employees. We will discuss the SPDs in the chronological order of their issuance. An SPD related to a "Benefit for Retired Salaried Employees Plan," which covers retired salaried employees who retired after Dec. 31, 1976, provides that health insurance and dental "... coverage remains in effect as long as your or your surviving spouse are living." The SPD related to a "Group Health Plan for Salaried Active Employees," dated January of 1978 and distributed to active salaried employees, states in pertinent part that upon retirement "benefits continue to be paid for by the Company," and that employees who wish to continue major medical coverage must "continue to pay [their] share of the cost."1 With respect to retirees' spouses, the plan document states that the "spouse and any eligible dependents ... can continue the protection" until the spouse "dies, remarries, or is covered by another employee's group plan"; spouses are "required to make monthly payments for both Basic and Major Medical coverage." The two plan documents applicable to hourly employees are essentially identical. The "Health Benefits Plan" and "Benefits for Retired Hourly Employees Plan" documents, created in January of 1978 and distributed to hourly employees at FANA's Carol Stream and Deerfield plants, both state that "... [b]enefits are provided to help you meet the expense of illness, injury, and other similar emergencies within your family" and that "[i]f a retired employee dies, the surviving spouse will have basic coverage continued for his or her lifetime at no cost." Finally, plan documents dated March and April of 1985, titled "Benefit Fact Sheets,"2 that were provided to salaried employees affected by the shutdown of FANA's Springfield plant, state that "[s]alaried employees for retirement will have the retired employee benefits in effect prior to March 1, 1985."3 None of these documents contain express reservation of rights clauses.
In the mid-1980s, FANA and its Italian parent corporation sought advice from three outside law firms as to whether these retiree plan benefits were vested. The employer had in mind an "onion solution" to deal with rising insurance costs, under which retiree benefits would be gradually peeled away. Lou Bland, a named retiree plaintiff, who served as a former vice-president and member of the Employee Benefits Committee, received copies of documents discussing the onion solution in the course of his employment, and retained these documents upon retirement.
In 1989, FANA published another SPD for active employees that altered the description of plan benefits and expressly reserved the right to amend benefits; this document did not state that these changes were effective with respect to retirees, and no plaintiff received it. Late in 2000, however, the plaintiffs received plan documents containing new benefit descriptions, which stated that costs for medical and dental coverage would dramatically increase as of February 1, 2001 and warned that benefits could be modified even after retirement.4
Angered by these modifications, plaintiffs filed suit in Illinois state court, contending that FANA had unilaterally reduced vested benefits by greatly increasing the cost to retirees. The case was then removed by FANA to federal district court. After discovery began, the plaintiffs uncovered documents discussing the "onion solution," and turned the documents over to defense counsel on the grounds that the documents might be privileged. FANA then requested a protective order claiming that the documents were privileged as attorney-client communications or work product and moved for the appointment of a magistrate judge to determine privilege issues. After conducting an in camera review, the magistrate judge entered a recommendation that most of the documents, including portions discussing the onion solution, were protected and inadmissible since they contained communications including attorney advice and relating exclusively to amendment or termination of the plan. The magistrate also rejected the plaintiffs' claims that numerous exceptions to the privilege applied.
After the district court accepted the magistrate's recommendations, the plaintiffs filed an amended complaint alleging that FANA had established a new health plan less favorable to plaintiffs in February of 2001 in breach of ERISA contract obligations and that FANA had made oral and written promises vesting health benefits that had been breached, thus violating ERISA fiduciary duties and the principles of estoppel. The plaintiffs never sought to certify any class under Fed.R.Civ.P. 23. The parties then filed cross-motions for judgment on the pleadings as to the alleged breach of the ERISA contract obligations claim. The district court awarded judgment on the pleadings to FANA, and the plaintiffs then voluntarily dismissed their other claims without prejudice in order to pursue an appeal of the ruling relating to the alleged breach of ERISA contract obligations. After the district court questioned whether these matters were in fact ripe for appeal, the plaintiffs agreed to voluntarily dismiss their breach of fiduciary duty and estoppel claims with prejudice. Thus, the only issues before us are whether the plan documents contain language that unambiguously vested ERISA contract rights or that is so ambiguous as to require a trial on the issue of vesting. There is a further question whether the district court erred in not admitting certain documents into evidence under exceptions to the privilege doctrine.
We review the decision to grant FANA's motion for judgment on the pleadings de novo. Forseth v. Village of Sussex,
II.
A.
Today's employment market is heavily impacted by the abruptly rising cost of health care, and the ensuing increases in health insurance premiums. The plan documents in the present case, created in the 1970s and 1980s, likely were the product of a social reality different from that now prevailing. Before 1980, employers in many cases, in granting health benefits, did not consider a possible need to modify them in the future. Only later with "spiraling medical costs, heightened foreign competition, epidemic corporate take-overs and the declining bargaining power of labor" was thought given to modifying benefits granted to retirees. See Bidlack v. Wheelabrator Corp.,
Under ERISA, employee benefit plans are classified either as welfare benefit plans or as pension plans. See 29 U.S.C. §§ 1002(1), 1002(2)(A) (2005). Pension plans provide retirement income to employees or allow employees to defer the receipt of income until or beyond the termination of the covered employment. 29 U.S.C. § 1002(2)(A) (2005). Welfare benefits, on the other hand, provide "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment...." 29 U.S.C. § 1002(1) (2005). While pension benefits are subject to strict vesting requirements, welfare benefits such as health and life insurance are vested only if the plan contract so provides. 29 U.S.C. § 1051(1) (2005). See also Curtiss-Wright Corp. v. Schoonejongen,
Welfare benefits may vest, however, when employers elect to enter into a private contract with employees as set forth in benefit plan documents. See Inter-Modal Rail Employees Ass'n v. Atchison, Topeka, & Santa Fe Ry. Co.,
Upon vesting, benefits become forever unalterable, and because employers are not legally required to vest benefits, the intention to vest must be found in "clear and express language" in plan documents. Inter-Modal Rail Employees Ass'n,
We have rejected the position that documents must use the word "vest" or some variant of it, or that the relevant writings must "state unequivocally" that the employer is creating rights that will not expire, since a court should not refuse to enforce a contract simply because the parties fail to use the "prescribed formula." Bidlack,
This circuit has held that there is a presumption against vesting when there is "silence" that "indicates that welfare benefits are not vested." Vallone,
B.
As Judge Posner remarked in Rossetto, the presumption against vesting is defeated by "any positive indication of ambiguity, something to make you scratch your head."
"Lifetime" language is found in three plan documents. Thus, the "Benefit for Retired Salaried Employees Plan" document covering retired salaried employees who retired after Dec. 31, 1976, provides that health insurance and dental "... coverage remains in effect as long as you or your surviving spouse are living." In addition, the "Health Benefits Plan" and "Benefits for Retired Hourly Employees Plan" documents distributed to hourly employees at FANA's Carol Stream and Deerfield plants state that "[i]f a retired employee dies, the surviving spouse will have basic coverage continued for his or her lifetime at no cost." Finally, the "Benefit Fact Sheets" provided to salaried employees affected by shutdown of FANA's Springfield plant state that employees would have "the retired employee benefits in effect prior to March 1, 1985," which plaintiffs contend were those established in the "Benefit for Retired Salaried Employees Plan," noted above.
But other language in the plan documents is comparatively weak. The January 1978 "Group Health Plan for Active Salaried Employees" document simply assures active salaried employees that "benefits continue to be paid for by the company," and that spouses and dependents "can continue the protection." And the two plan documents directed to hourly employees merely state that "benefits are provided" for retirees. Significantly, there is no express reservation of rights clause in any of the plan documents.
To further complicate the matter, the question arises whether the "Benefits for Retired Salaried Employees Plan" document may be applied to employees who retired after the "Group Health Plan for Active Salaried Employees" was established. The district court found that the "Benefits for Retired Salaried Employees" Plan governed only the claims of salaried employees who retired in 1977 and later stated that this plan was replaced in January of 1978 by the "Group Health Plan for Active Salaried Employees." The district court also concluded with respect to the 1985 "Benefit Fact Sheets" that they referenced only the January 1978 "Group Health Plan For Active Salaried Employees," and not the "Benefits for Retired Salaried Employees Plan" of 1976 vintage. We are doubtful, however, that such conclusions can be reached on summary judgment.
Whatever plans were in effect at any given time, the "life-time" language in the plan documents leads us to conclude that they are not silent as to vesting, but merely somewhat vague; however, they are clear enough to vitiate the presumption against vesting. The absence of a reservation of rights clause distinguishes this case from Vallone, and the "lifetime" language used in the plan documents is stronger and more explicit than language in comparable cases. See Senn v. United Dominion Indus., Inc.,
Further, in the absence of a reservation of rights clause, we are convinced (not surprisingly) that in the case before us "lifetime" is durational, meaning "for life." In Vallone, we acknowledged alternatively that "lifetime" in the context of "lifetime benefits" could be construed as "good for life unless revoked or modified."
We thus hold that, under Vallone and its antecedents, the presence of "lifetime" language in several of the FANA plan documents — language uncontradicted by the agreement read in its entirety — defeats summary judgment. Vallone,
III.
In holding that the language of several of the plan documents is ambiguous as to vesting, of course we open the door to consideration of extrinsic evidence. However, considerations of privilege may not allow that door to open very far, since the opening may be constrained by the magistrate judge's conclusion that most of the documents to which plaintiffs seek to gain access are protected by the attorney-client and/or work-product privileges.
A.
The appropriate standard of review of a district court's findings of fact regarding claims of attorney-client privilege is the clearly erroneous standard. United States v. Evans,
The magistrate judge determined that the fiduciary exception was not available here since the amendment or termination of plan benefits is not a fiduciary action. Initially, it is questionable whether the fiduciary exception is even applicable, since the plaintiffs voluntarily dismissed their breach of fiduciary duty claim with prejudice, and thus should perhaps not get the benefit of the exception. In any event, we cannot find that the magistrate judge erred in concluding that an employer acts as a fiduciary only when it undertakes plan management or administration. An employer acts in a dual capacity as both the manager of its business and as a fiduciary with respect to unaccrued welfare benefits, is free to alter or eliminate such benefits without considering employees' interests and does not owe its employees a fiduciary duty when it amends or abolishes unaccrued benefits. Young v. Standard Oil, Inc.,
B.
The plaintiffs also seek to obviate the work-product doctrine through two exceptions: a "crime/fraud" exception and an "extraordinary need" exception. The magistrate judge stated that the plaintiffs had dropped the crime/fraud exception in their sur-reply, and so did not address that argument. For this reason, we deem this argument waived.
The plaintiffs also assert that they have a substantial need for the documents protected as work-product, claiming that these documents prove that FANA knew its medical benefits were vested as of 1984, and that the plaintiffs would encounter substantial hardship in obtaining the material through alternative means under Fed.R.Civ.P. 26(b)(3). See Hickman v. Taylor,
IV.
We therefore hold that the "lifetime" language in several of the FANA plan documents is at least ambiguous as to whether some or all of the retiree benefits are vested. Here, there is no reservation of rights clause to constrain the interpretation of explicit "lifetime" language. If any retiree benefits are in fact vested, then additional determinations will have to be made with respect to which benefits are vested, or whether the 2001 modifications to retiree benefits effectively cut off retirees' rights. Accordingly, we REVERSE the grant of summary judgment to the defendant and REMAND this case for further proceedings consistent with this opinion.
Notes:
Notes
Plaintiffs contend that this SPD was in effect for active salaried employees from January of 1978 through March or April of 1985
These documents were never designated by FANA as SPDs
Plaintiffs assert that the Benefit Fact sheets referenced the benefits described in the Benefit for Retired Salaried Employees Plan
The new "BenefitSelect" Medical Plan implemented on February 1, 2001, increased retiree cost-sharing features. While it contained hospitalization, X-ray, ambulance, emergency room, and office visit coverages similar to those in the pre-1989 plans, it implemented a preferred provider network system. Non-Medicare-eligible retirees were offered PPO, POS, HMO, and basic protection, and Medicare-eligible retirees were offered a non-network plan. Retirees who elected PPO in-network benefits had many of the same coverage levels for many items as provided under the pre-1989 plan, with costs being covered at rates of 90 to 100 percent and with co-payments between $10 and $25. The POS and HMO plans varied in coverage levels and deductibles, depending on residence. Finally, the non-network plan contained a $500 annual deductible and covered 70% of the expenses found in the network plan. The new BenefitSelect Dental Plan changed the percentage of covered expenses depending on whether retirees elected the PPO or the traditional plan, with some levels of coverage (such as for dentures, bridgework, fillings, and crowns) remaining the same or substantially similar