Frahm v. Equitable Life Assur. Soc. of U.S.

Decision Date27 February 1998
Docket NumberNo. 97-1912,97-1912
Parties, 21 Employee Benefits Cas. 2679, Pens. Plan Guide (CCH) P 23942O Dolores FRAHM, et al., Plaintiffs-Appellants, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Lionel I. Brazen, Chicago, IL, Mark D. DeBofsky (argued), DeBofsky & DeBofsky, Chicago, IL, for Plaintiffs-Appellants.

Wilber H. Boies (argued), McDermott, Will & Emery, Chicago, IL, for Defendant-Appellee.

Before CUDAHY, EASTERBROOK, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

Insurance agents affiliated with the Equitable Life Assurance Society receive medical benefits, as do retired agents. In 1988 the Equitable instituted a copayment program for all active and some retired agents; its right to do this was secure under both the medical care plan and the summary plan descriptions, which reserved the right to change the plan's terms (or end the plan altogether) at any time. See Murphy v. Keystone Steel & Wire Co., 61 F.3d 560, 565 (7th Cir.1995); Senn v. United Dominion Industries, Inc., 951 F.2d 806, 814-16 (7th Cir.1992). In 1991 the Equitable made additional changes for active agents, giving them a choice of plans but also (the district judge found) establishing "significantly higher payment obligations on its participants and beneficiaries with respect to premiums, deductibles, co-payments, and maximum out-of-pocket limitations. It also imposed certain cost-sharing obligations, even on those who had been exempted from earlier cost-sharing measures." In 1993 the Equitable extended the active agents' medical benefits program to all retired agents under the age of 65. Six affected retirees filed this suit under ERISA. The district judge conducted a bench trial and entered judgment for the Equitable after concluding that none of plaintiffs' theories justified stripping the employer of its reserved power to change the health plan at any time--a power it was free to use without having to show that the changes were beneficial to the active or retired agents. See Lockheed Corp. v. Spink, 517 U.S. 882, 116 S.Ct. 1783, 135 L.Ed.2d 153 (1996); Johnson v. Georgia-Pacific Corp., 19 F.3d 1184 (7th Cir.1994).

Plaintiffs sought to represent a class of all retired agents who preferred the old plan to the new. The district court certified the case as a class action to the extent it presents the question whether retirement causes health benefits to vest at whatever level was in place on each agent's retirement date and granted summary judgment for the Equitable, finding the reservation-of-rights clauses in the plan (and summary plan descriptions) too clear to admit of argument. Plaintiffs have not appealed from this aspect of the judgment. What led to the trial was not ambiguity in the plan or associated documents, as in Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir.1993) (en banc), but conflicting evidence about representations made to the plaintiffs personally. They contended that the Equitable had made individual contracts with them establishing rights on top of those created by the health benefits plan; they also argued that oral statements and letters during discussions about their retirements violated the employer's fiduciary duty under ERISA or estopped it to enforce the plan according to its terms. On these issues the district court declined to certify a class--and sensibly so. Plaintiffs relied on Fed.R.Civ.P. 23(b)(3), and a judge may certify a class under that subdivision only if "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and ... a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Common questions predominated with respect to the vested-benefits claim; for all other claims everything depends on what was said or sent to each agent personally, and different benefits advisers said or wrote different things to different agents. Individual rather than class litigation is the best way to resolve person-specific contentions when the stakes are large enough to justify individual suits. Sprague v. General Motors Corp., 133 F.3d 388, 397-99 (6th Cir.1998) (en banc); In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293 (7th Cir.1995). What is more, plaintiffs' request that we direct the district judge to certify the case as a class action across the board calls into question their adequacy as class representatives. See Fed.R.Civ.P. 23(a)(4). They litigated and lost; do they want to take all other retirees down in flames with them? "[A] class representative who has lost on the merits may have a duty to the class to oppose class certification, to avoid the preclusive effect of the judgment". Bieneman v. Chicago, 838 F.2d 962, 964 (7th Cir.1988) (emphasis added). Plaintiffs' request to extend the class certification is not contingent on prevailing on the merits, and anyway Rule 23's criteria do not depend on who wins in the end. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 176-78, 94 S.Ct. 2140, 2151-53, 40 L.Ed.2d 732 (1974). But because the district judge did not abuse his discretion in concluding that the case fails to satisfy Rule 23(b)(3), we need not decide whether plaintiffs also fall short as representatives of other retirees' interests.

Let us begin with the plaintiffs' argument that the Equitable made with each of them a bilateral contract whose terms differ from those of the firm-wide health care plan. Each plaintiff claims a right, for life, to the health care benefits in force on his or her date of retirement. The Equitable denies that a personal agreement is possible, but we see no reason in principle why not. A pension plan must be established as a trust, and for that reason it is hard to create single-employee pension contracts--although employers can make promises that work very much like pensions, provided they fall outside of ERISA. Compare Nagy v. Riblet Products Corp., 79 F.3d 572 (7th Cir.1996), with Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073 (7th Cir.1992). Welfare benefit plans, a category that includes medical plans, 29 U.S.C. § 1002(1)(A), may be set up informally and funded by an employer's general revenues. Almost any fringe benefit other than a pension is a "welfare plan" under the catchall clause in § 1002(1)(B)--including vacation pay, holiday bonuses, severance payments, and other elements of compensation that are not directly reflected in the hourly wage. (All of these examples are listed in 29 U.S.C. § 186(c), to which § 1002(1)(B) refers. See also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987).) Bilateral agreements on the length of vacation and amount of severance pay are common, and if these are proper then bilateral agreements about health care also must be proper. A firm could award severance pay equal to the expected difference between the firm's medical plan and full coverage, leaving the employee to buy a policy covering the gap. If this is proper, what's wrong with a promise to provide medical care in kind? The sixth circuit's en banc decision in Sprague observes that plans must be in writing, which sets limits on the scope of bilateral agreements, but the court did not deny that such agreements are possible if required forms are observed.

A conclusion that bilateral contracts about welfare benefits are possible gets plaintiffs nowhere, however, unless they also established that they formed such contracts. The district court held that they had not done so, principally because their early retirements did not give the Equitable any consideration for a promise of lifetime benefits. Plaintiffs not only did not give the Equitable a benefit but also, the district court remarked, did not incur any detriment: they remain eligible to sell the Equitable's policies on the same terms as active agents, and all six have taken advantage of this opportunity. Even if some consideration can be located in the record (the retired agents say that the Equitable stopped matching their FICA taxes), plaintiffs face a greater hurdle, the district court found: "None of the plaintiffs here entered into any special written agreement with Equitable in which the cost of their health insurance was 'locked in' ". This finding, which is not clearly erroneous, makes it impossible for plaintiffs to prevail on a contract theory. For one basic element of a long-term contract is a writing signed by the party to be bound. ERISA provides that pension plans must be established in writing, see 29 U.S.C. § 1102(a)(1), which is a long way toward a statute of frauds--as is the Supreme Court's observation that under ERISA "every employee may, on examining the plan documents, determine exactly what his rights and obligations are under the plan." Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83, 115 S.Ct. 1223, 1230, 131 L.Ed.2d 94 (1995). Although § 1102(a)(1) does not cover all possible ground--it leaves open, for example, the possibility that a written plan may be combined with an oral promise, such as an undertaking to give a worker twice the benefits so established--the utility of reducing retirement promises to writing and avoiding arguments about who said what to whom are so fundamental to both ERISA and contract law that an extension of the writing requirement to all long-term commitments is an inescapable ingredient of the federal common law slowly accumulating in ERISA's shadow. Sprague made this extension, and sensibly so. Cf. Mohr v. Metro East Mfg. Co., 711 F.2d 69 (7th Cir.1983) (departure from terms of a collective bargaining agreement permissible only if in writing). All ten judges who sat in Bidlack relied on writings; none suggested that a wholly oral promise could require the employer to provide lifetime benefits. The district court wrapped up: "Because...

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