532 F.3d 364 (5th Cir. 2008), 07-40477, Nichols v. Alcatel USA, Inc.

Docket Nº:07-40477.
Citation:532 F.3d 364
Party Name:Judy NICHOLS, Individually and on behalf of the Alcatel Network Systems Salaried Retirees Benefit Program and other persons similarly situated; Jerry Brown, Individually and on behalf of the Alcatel Network Systems Salaried Retirees Benefit Program and other persons similarly situated; Robert Braley, Individually and on behalf of the Alcatel Networ
Case Date:June 20, 2008
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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532 F.3d 364 (5th Cir. 2008)

Judy NICHOLS, Individually and on behalf of the Alcatel Network Systems Salaried Retirees Benefit Program and other persons similarly situated; Jerry Brown, Individually and on behalf of the Alcatel Network Systems Salaried Retirees Benefit Program and other persons similarly situated; Robert Braley, Individually and on behalf of the Alcatel Network Systems Salaried Retirees Benefit Program and other persons similarly situated; Erma Scott, all persons in the proposed Union Retirees class; International Union Electronic, CWA Local 86787, Individually and on behalf of the Group Insurance Plans, and others similarly situated; IUE, The International Division of Communication Workers of America, AFL-CIO, CLC (IUE-CWA), Plaintiffs-Appellants,


ALCATEL USA, INC., Defendant-Appellee.

No. 07-40477.

United States Court of Appeals, Fifth Circuit.

June 20, 2008

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Hal K. Gillespie , Karla S. Jackson , Gillespie, Rozen, Watsky, Motley & Jones, Walt D. Roper , The Cochran Firm, Dallas, TX, Brian Paul Sanford (argued), Sheils, Winnubst, Sanford & Bethune, Richardson, TX, John B. Greer, III , Greer, McCasland & Miller, Texarkana, TX, for Plaintiffs-Appellants.

Ronald E. Manthey (argued), Ellen L. Perlioni , Morgan, Lewis & Bockius, Dallas, TX, Michael A. Pollard , Baker & McKenzie, Chicago, IL, for Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before JONES , Chief Judge, and BARKSDALE and STEWART , Circuit Judges.

CARL E. STEWART , Circuit Judge:

This putative class action concerns the elimination of retirement medical benefits for workers who retired from Alcatel USA, Inc. (“AUSA" ) or its predecessors. The retirees in this action are divided into two groups: Salaried Retirees and Union Retirees (collectively “the Retirees" ). AUSA provided the Salaried Retirees with a Salaried Retirees Benefit program and agreed to provide medical benefits to Union Retirees under collective bargaining agreements and other similar arrangements. The Salaried Retirees contend that the Benefit program is a pension plan and consequently subject to vesting under the Employee Retirement Income Security Act (“ERISA" ), 29 U.S.C. § 1001 et seq. They are also alleging claims of ERISA-estoppel and breach of fiduciary duty. The Union Retirees contend that AUSA does not have the right to increase the cost of retiree health benefits because they are fixed lifetime benefits which individually vested at the time of each retiree's retirement based upon the agreement and course of action between the parties. The Retirees filed a motion for preliminary injunction, which was subsequently denied by the district court. The Retirees timely filed their notice of interlocutory appeal. Finding no error, we AFFIRM.


In November 2003, AUSA announced that it planned to implement changes to certain of its retiree medical welfare benefit plans, including a gradual reduction over a three-year period in the amount of its contribution to the costs of medical benefits. On March 17, 2005, four individual Retirees: Judy Nichols, Jerry Brown, Robert Braley, and Erma Scott, as well as two unions: the IUE, International Division of the Communications Workers of America, AFL-CIO, CLC (IUE-CWA) and the IUE-CWA Local 86787, filed this lawsuit, contesting the changes to the benefit plans. All of the Retirees alleged claims under § 502(a) of ERISA, 29 U.S.C. § 1132 (a). The Union Retirees also alleged a claim under § 301 of the Labor Management Relations Act (“LMRA" ), 29 U.S.C. § 185 . Ultimately, the Retirees were seeking “to reinstate cancelled benefits,

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to undo reductions in benefits, to be ‘made whole’ for losses due to [AUSA's] actions, to preserve and continue the medical benefits for the lifetimes of the retirees, eligible dependents, and surviving spouses, and to recover attorney fees and costs." On October 16, 2006, the Retirees filed a motion for preliminary injunction seeking class-wide injunctive relief1 on behalf of the Salaried Retirees participating in AUSA's Plan B Retirement Medical Plan and the Union Retirees participating in AUSA's Plans E and F Retirement Medical Plans.2 Specifically, the Retirees sought to prevent AUSA from: (1) eliminating any portion of the health coverage savings accounts for Salaried Retirees; (2) charging more for health insurance for Union Retirees who retired before May 2, 2000, than the monthly rate of $22 for individuals and $47.93 for families; (3) increasing any health insurance costs to Union Retirees beyond 25% of the plan costs; and (4) increasing the health insurance costs to the Retirees until the rates can be justified. Pertinent background information regarding the three retirement medical plans at issue in this case is included below.

Plan B: This plan includes the Salaried Retirees from several AUSA facilities who retired between April 4, 1993 and December 31, 2002, and who met the eligibility requirements or were grandfathered. Under this plan, Salaried Retirees from AUSA can participate in the medical coverage option, participate in the prescription drug only option, or elect to participate in a non-AUSA medical plan. AUSA contributed to the cost of the medical coverage through a calculated “medical credit." 3 No actual money was set aside to fund the medical credits; rather the credits were conceptual “buckets of money." AUSA only contributed to medical coverage costs up to the amount of the medical credit, regardless of how much premium amounts increased. Accordingly, retirees under this plan could only offset their medical premiums up to the amount of the aggregate medical credits that have been granted to them through the allocations of the monthly medical amount. If their insurance premiums were less than the monthly medical amount, any excess remained available to them for future medical premiums. AUSA did not issue any 1099s to Plan B retirees for the amount of the medical credits.

When Plan B was introduced, AUSA, through Terry Latham, its former Vice

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President of Human Resources, explained to the employees that there was no funding or vesting in this plan and that AUSA reserved the right to change, amend, or terminate the Plan for any reason or purpose.4 The operative documents for the plan are the Plan Document and Summary Plan Description (“SPD" ) and a brochure entitled “Straight Talk About Your Retirement Program" (“Straight Talk brochure" ). The SPD states that the plan is a “self-funded employee welfare benefit plan" and expressly states that the plan does not create a vested right. Similarly the Straight Talk brochure explains that: “There is no cash option under this Plan. You may only use the Retirement Medical Credit to help pay premiums for retirement medical coverage." “A memo about Plan B" also states that “the post-retirement medical plan could change in the future, just as the current retirement medical plan could change."

In November 2003, AUSA announced that its contribution to the costs of medical benefits for retirees under this Plan was going to be reduced to zero by January 1, 2006.5 To that end, AUSA reduced its maximum contribution to 66% in 2004, 33% in 2005, and 0% in 2006 and thereafter. Currently, AUSA continues to offer retiree medical and prescription drug benefits through Plan B. However, it no longer provides Plan B retirees with new medical credits to offset the cost of coverage. Any monthly medical credits that were granted prior to the plan change continue to be available to retirees until exhausted.

Plan F: This plan covers bargaining unit members who retired from January 1, 1986 until before the last collective bargaining agreement (“CBA" ) became effective on May 1, 2000. This plan never included medical credits; rather union retirees could pay $22 or $47.93 to receive single or family coverage, respectively. In each CBA in the record, retiree medical benefits are addressed in Article XX. Article XX of the 1985 CBA states that the insurance provisions will remain available during the term of the agreement and also states that once a retiree and/or their dependent “attains age sixty-five (65) the coverage will be a Medicare carve out." The other CBAs in the record contain similar language. The SPD for Plan F explains:

Alcatel Network Systems, Inc. reserves the right to change in any manner or to terminate all or any part of the Plan at any time and to cancel all or any part of the coverages and benefits under the Plan, except that if the Plan is maintained pursuant to a collective bargaining contract no such action shall be taken during the term of such contract or at any time thereafter until Alcatel Network Systems, Inc. has complied with any collective bargaining obligation which it may have with respect to the Plan.

Latham testified that the premiums had been set at the rate of $22 for single coverage and $47.93 for family coverage since he initially became responsible for the union retirees in 1983.6 While he contemplated raising the premiums, he was told that there was a letter of understanding between AUSA and the union that the

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rates were fixed. Latham never asked to see the letter, and unlike other letter agreements, this purported agreement was never incorporated into any CBA.

On August 24, 2001, AUSA Marketing, Inc. (“AUSA Marketing" ) sold its division that contained the bargaining unit to another company. Prior to the sale, AUSA Marketing negotiated an agreement (“Termination Agreement" ) with the union that terminated the existing CBA and resolved any outstanding obligations. The...

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