Cherry v. Auburn Gear, Inc., 05-3682.

• Decision Date: 17 March 2006
• Docket Number: No. 05-3682.,05-3682.
• Citation: 441 F.3d 476
• Parties: Richard CHERRY, George James, and Joseph Roop, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. AUBURN GEAR, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

441 F.3d 476

Richard CHERRY, George James, and Joseph Roop, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. AUBURN GEAR, INC., Defendant-Appellee.

No. 05-3682.

United States Court of Appeals, Seventh Circuit.

Argued February 6, 2006.

Decided March 17, 2006.

COPYRIGHT MATERIAL OMITTED

Barry A. Macey (argued), Macey Swanson & Allman, Indianapolis, IN, for Plaintiffs-Appellants.

Kathleen M. Anderson (argued), Barnes & Thornburg, Fort Wayne, IN, for Defendant-Appellee.

Before FLAUM, Chief Judge, and ROVNER and SYKES, Circuit Judges.

FLAUM, Chief Judge.

The defendant-appellee, Auburn Gear, terminated benefits to retired employees of Auburn Gear and its predecessor Borg-Warner. The retired employees filed suit, claiming that their collectively bargained insurance agreements provided "lifetime benefits" that could not be terminated. The district court found that the language of the collectively bargained insurance agreements limited benefits to the term of the agreements and contained no patent or latent ambiguities. As a result, when the terms of the collectively bargained insurance agreements expired, so did Auburn Gear's obligation to provide benefits. On this basis, the district court granted summary judgment for Auburn Gear.

For the following reasons, we now affirm the judgment of the district court.

I. Background

The plaintiffs-appellants are retired hourly employees of a manufacturing facility located in Auburn, Indiana. Throughout the relevant time period, the employees (now "retirees") were represented by United Auto Workers Local 825 ("Union"). Approximately every three years, the Union negotiated a new collective bargaining agreement ("CBA") and collectively bargained insurance agreement ("CBIA") with the employer. The original employer, Borg-Warner Corporation, sold the facility to Auburn Gear in November 1982.¹

The retirees' health insurance benefits were discussed in each CBIA. Although Union representatives sometimes met with the retirees to explain new terms in the contracts, there is no allegation that the Union required the retirees' consent to ratify the CBIAs.

At issue in this case are CBIAs negotiated by Borg-Warner and the Union covering the time periods from 1971-74, 1974-77, 1977-80, and 1980-83, as well as the CBIAs between Auburn Gear and the Union covering the time periods from 1983-1986, 1986-1989, and 1989-1992.

The 1980-83 CBA contains an integration clause similar to integration clauses contained in the other relevant agreements:²

9.1.1 It is understood that this Agreement, together with the following Agreements, shall be considered the full working arrangement between the Company and the Union:

(a) Retirement Income Agreement and Plan.

(b) Insurance Agreement.

(c) Supplemental Unemployment Benefit Agreement and Plan.

9.2.1 Each said Agreement shall be considered a separate portion which can be negotiated independently. . . .

Section I of the 1971 CBIA, entitled Group Insurance Agreement, states, "The Company will maintain during the period of this Agreement . . . [various insurance and other benefits] as set forth in this agreement." (Emphasis added.) Each CBIA, including the 1971 contract, states, "This Agreement shall be in full force and effect until midnight [of the expiration date.]" Section II of the CBIA sets forth benefits available to active employees. Section VI describes healthcare benefits and life insurance plans available under the CBIA to retired employees.

The first CBIA between the Union and Auburn Gear was signed in 1983. Except for the effective dates of coverage, most contract terms remained the same as the terms negotiated by the Union and Borg-Warner. However, the 1983 CBIA contained different language relating to bridge and transition benefits. In the 1980 CBIA these benefits were available to retirees who had retired under total and permanent disability provisions. In the 1983 CBIA these benefits were limited to active employees.

Additionally, the 1983 CBIA is the first CBIA to address the impact of Medicare supplemental insurance. Under the contract, individuals who had previously retired ("Borg-Warner Retirees") were not subject to certain increases in deductibles, percentages, or out-of-pocket limitations that new retirees were.

In an attempt to explain the parties' contemporary understanding, the retirees present handwritten minutes from a meeting on March 28, 1983. These minutes recount an exchange between Auburn Gear's chief negotiator and the Union President. Auburn Gear's negotiator stated, "When we entered into negotiations we had told you that retiree costs couldn't be changed, now we think it can be changed." The Union President responded, "It is our legal opinion that we can't negotiate away retiree benefits."

Auburn Gear claims its major goal in the 1983 negotiation was to eliminate benefits under the "30 and out" provision, which allowed employees to retire before reaching the age of 65. Under the 1983 CBIA, employees who retired before the age of 65 were not eligible for retiree benefits until their sixty-fifth birthday. Immediately following the execution of the 1983 contract, however, and pursuant to negotiations, a group of fifteen to twenty "grandfathered" active employees were sent letters — signed by Terry Dean, a supervisor for Auburn Gear — stating that they would still be eligible for the "30 and out" provision. Auburn Gear made this exception to avoid an exodus of experienced employees. In subsequent agreements, these "grandfathered" employees were treated as if they retired under the previous Borg-Warner contract.

In his deposition, Union President Salvatore Bevilacqua admitted that the 1983 CBIA altered the prescription drug plan for retirees, adding a $3 co-pay that applied to both new and existing retirees. Terry Dean explained that, as he understood the plans in 1983, benefits were not vested. Although retirees could elect to take a pension benefit plan that would last until they died, "the insurance benefits were contract to contract." During his deposition, Dean explained that his letter was intended to communicate to the retirees that their benefits "were vested and that they would receive those benefits when they retired as long as they were negotiated in every agreement." (Emphasis added.) In addition to the $3 prescription co-pay, beginning in 1983, retirees who were ineligible to receive Medicare were charged a monthly fee to retain their hospital and surgical benefits.

In 1986, a preferred care plan was added and the provisions for retirees not eligible for Medicare were changed to include deductibles. In the 1989 CBIA, contributions and co-pays were altered again.

The plaintiffs claim that Auburn Gear's actions during a 1990 arbitration proceeding demonstrates that Auburn Gear understood the benefits to have an indefinite duration. Auburn Gear claimed it was not obligated to provide benefits and possible survivor benefits to a 24-year-old spouse of a 53-year-old retiree. Terry Dean stated that Auburn Gear did not want to be "stuck . . . paying for an uncontrollable amount of benefits over an uncontrollable amount of time." Auburn Gear lost the arbitration.

A new CBIA signed on December 16, 1991, introduced language that was significantly different from previous CBIAs. For the first time, the CBIA included "retiree benefits" in the list of items that Section I specified Auburn Gear must "provide during the term of the agreement." The 1991 agreement also tied the duration of the CBIA to the duration of the CBA.

Retiree insurance was provided by Auburn Gear until the 1998-2001 agreements expired in April 2001. A series of letter agreements between Auburn Gear and the Union continued retiree insurance until November 3, 2002. In October 2002, Auburn Gear informed the Union of its intention to terminate retiree health insurance benefits. The Union's active employees went on strike on November 3, 2002. The next day Auburn Gear sent a letter to all retirees terminating benefits. The retirees challenge that termination.

II. Discussion

We review the district court's grant of summary judgment de novo. See, e.g., Matuszak v. Torrington Co., 927 F.2d 320, 322 (7th Cir.1991). Summary judgment is not warranted when there are genuine issues of material fact with respect to the interpretation of a contract. See Diehl v. Twin Disc, Inc., 102 F.3d 301, 305 (7th Cir.1996). "[A] contract's meaning is a matter of law, and where there is no contractual ambiguity, there is no resort to extrinsic evidence, hence no factual dispute to preclude summary judgment." Id. (citing GCIU Employer Ret. Fund v. Chi. Tribune Co., 66 F.3d 862, 864-65 (7th Cir.1995)). Unless patent or latent ambiguity can be proven, "extrinsic evidence is not proper to stave off summary judgment." Barnett v. Ameren Corp., 436 F.3d 830, 832 (7th Cir.2006).

Unlike pension benefits under ERISA, insurance benefits, such as the benefits at issue in this case, do not automatically vest. See, e.g., Bidlack v. Wheelabrator Corp., 993 F.2d 603, 604-05 (7th Cir.1993) (en banc), cert. denied, 510 U.S. 909, 114 S.Ct. 291, 126 L.Ed.2d 240 (1993). Unless a contract provides for the vesting of benefits, the presumption is that benefits terminate when a collective bargaining agreement ends. Bidlack, 993 F.2d at 606-07; Pabst Brewing Co. v. Corrao, 161 F.3d 434, 439 (7th Cir.1998) ("ERISA does not require the vesting of welfare benefits; if they vest at all, they do so under the terms of a particular contract.").

The presumption that healthcare benefits do not exceed the life of an agreement imposes a high burden of proof upon the retirees. See Bidlack, 993 F.2d at 606-07; Rossetto, v. Pabst Brewing Co., Inc., 217 F.3d 539, 544 (7th Cir.2000) ("[A]s word of the Bidlack presumption spreads and collective bargaining agreements are renegotiated, it will become obvious to unions that if they want to assure that employer-paid...