Wood v. Detroit Diesel Corp.
| Decision Date | 03 June 2010 |
| Docket Number | No. 09-1252.,09-1252. |
| Citation | 607 F.3d 427 |
| Parties | Daniel WOOD; Ronald Goins; Priscilla Sue Street, Plaintiffs-Appellees,v.DETROIT DIESEL CORPORATION, Defendant-Appellant,andInternational Union, United Automobile, Aerospace and Agricultural Implement Workers of America and its Local 163, Third Party. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: Thomas G. Kienbaum, Kienbaum, Opperwall, Hardy & Pelton, P.L.C., Birmingham, Michigan, for Appellant. Andrew A. Nickelhoff, Sachs Waldman, Detroit, Michigan, for Appellees. ON BRIEF: Thomas G. Kienbaum, William Bruce Forrest, III, Kienbaum, Opperwall, Hardy & Pelton, P.L.C., Birmingham, Michigan, for Appellant. Andrew A. Nickelhoff, Sachs Waldman, Detroit, Michigan, for Appellees.
Before SILER, ROGERS, and McKEAGUE, Circuit Judges.
ROGERS, J., delivered the opinion of the court, in which SILER, J., joined. McKEAGUE, J. (pp. 437-38), delivered a separate dissenting opinion.
Detroit Diesel Corporation and the union representing Detroit Diesel's workers entered into a series of agreements purporting to cap Detroit Diesel's contributions to retiree health care benefits for workers who retired between 1993 and 2004. Both Detroit Diesel and the union intended this agreement to reduce Detroit Diesel's balance sheet liability after an accounting rule change in late 1992 required-for the first time-that Detroit Diesel account for retiree health care costs on an accrual basis. Detroit Diesel and the union did not renew the agreements capping benefits in the 2004 bargaining cycle, instead implementing a new retiree health care program for post-2004 retirees. The parties dispute whether the caps continue to apply to 1993-2004 retirees. Interpreting the relevant agreements to provide for continued application of the caps is the most sensible reading of those agreements, is consistent with Detroit Diesel's accounting obligations, and is consistent with our precedents. The agreed caps therefore continue to apply to 1993-2004 retirees.
Detroit Diesel Corporation designs and manufactures diesel engines at a plant in Detroit, Michigan. The International Union, United Automobile, Aerospace, and Agricultural Workers of America Local 163(UAW) represents the production and maintenance personnel employed by Detroit Diesel. Operating under an agreement collectively bargained between Detroit Diesel and the UAW, Detroit Diesel provided health care insurance coverage to its retirees as of 1993. In that year, Detroit Diesel and the UAW entered into the first of a series of “Cap Agreements,” which purported to limit the yearly expenditures by Detroit Diesel for the health care costs of workers who retired after the first Cap Agreement's effective date. This case concerns the interpretation of those agreements.
The parties entered into the negotiations that eventually led to the first of the Cap Agreements as a result of an accounting rule-FAS 106-promulgated by the Financial Accounting Standards Board in December 1992. That rule required, for the first time, that publicly traded companies, including Detroit Diesel, account for retiree health care costs on an accrual basis. FAS 106 required companies to recognize a liability for the present value of all of their future payments for retiree health care expenditures immediately rather than including these costs on the company's balance sheet on a pay-as-you-go basis. See United Steelworkers v. Cooper Tire & Rubber Co., 474 F.3d 271, 274 n. 5 (6th Cir.2007). FAS 106 also required a presumption that companies would continue to provide the same level of health care benefits, even when those benefits were not vested. Detroit Diesel's then-Chairman and CEO testified that Detroit Diesel had a capital base of approximately fifty to seventy million dollars in late 1992 and early 1993, and that FAS 106, if implemented without any change to Detroit Diesel's collective bargaining agreements (CBAs), would have resulted in Detroit Diesel's recognizing a one hundred million dollar liability. Such a change, the then-Chairman testified, could have bankrupted the company by rendering it unable to obtain capital.
To avoid this outcome, as well as to protect the employees' profit sharing and jobs, Detroit Diesel and the UAW entered into the first of the Cap Agreements on January 7, 1993. This 1993 Cap Agreement provided:
The 1993 contribution limit proved to be $6,710, and the 1994 limit was $7,381. The 1993 Cap Agreement also provided that the parties would establish a Voluntary Employee Benefit Association (VEBA) Trust. The agreement provided that the parties would “utilize this VEBA Trust to automatically pay any premiums in excess of the contribution limit for retiree health care costs and such other benefits as may be allowed under VEBA regulations and agreed to by the parties.” Detroit Diesel agreed to contribute $200,000 to the trust in 1993 and $100,000 in 1994. The parties also agreed that the Detroit Diesel/UAW Joint Training Fund would contribute $100,000 to the trust in each of 1993 and 1994. The 1993 Cap Agreement further provided that “[i]f either party has an issue regarding benefits paid out of the [VEBA] [T]rust and/or the amount or sources of funding into the trust that cannot be resolved by the [VEBA] Committee, then ... such issue will be collectively bargained among the parties.” 1
Contemporaneously with the signing of the 1993 Cap Agreement, Detroit Diesel Senior Vice-President Paul Walters signed a letter addressed to UAW Region 1A Director Robert King, which stated in part:
The CBA in effect in 1993 expired in 1994. After collective bargaining, the parties entered into the second Cap Agreement, dated August 26, 1994, which was a companion to the 1994 Master CBA. This 1994 Cap Agreement provided, “The current limit of [Detroit Diesel]'s contribution toward post-retirement Health Care, of $7,381, will remain at that amount during the life of the 1994 [Detroit Diesel]/UAW Master Agreement.” The 1994 Cap Agreement also provided that the VEBA Trust would receive $1,000,000 per year from the following sources: $420,000 per year from the employee profit-sharing pool, $500,000 per year from the Detroit Diesel/UAW Joint Training Fund, and $80,000 per year from Detroit Diesel.
The 1994 CBA expired in 1998. The third Cap Agreement was signed around March 3, 1999, as a companion to the 1998 Master CBA, and it provided:
The 1998 Master CBA expired in 2004. Detroit Diesel and the UAW entered into a new Master CBA in 2004 that implemented a new health care program for post-2004 retirees. The parties did not enter into any additional agreements regarding Detroit Diesel's contribution limits for 1993-2004 retirees or regarding post-2004 contributions to the VEBA Trust. Within the next two years, the funds in the VEBA Trust were depleted. In August 2005, Detroit Diesel notified retirees who had retired between 1993 and 2004 that they would be responsible for the above-cap costs of their health care beginning in January 2006. For some retirees, such costs were more than eight hundred dollars per month.
Plaintiffs, who are among the retirees notified that they would have to pay above-cap costs, sued Detroit Diesel in October 2005 under the Labor-Management Relations Act, 29 U.S.C. § 185, and the Employee Retirement Income Security Act, 29 U.S.C. § 1132(a)(1)(B), arguing that they were entitled to fully funded, lifetime health care benefits. The district court granted plaintiffs' motion for a preliminary injunction requiring Detroit Diesel to continue providing fully funded health care benefits to the retirees during the pendency of this action. Wood v. Detroit Diesel Corp., No. 05-74106, 2005 WL 3579169 (E.D.Mich. Dec. 30, 2005). The district court reasoned that because none of the agreements between Detroit Diesel and the UAW expressly stated that retirees would have to contribute to health care premiums, the plaintiffs had demonstrated a likelihood of success on the merits. Id. at *5. We rejected this reasoning on appeal, holding that the lack of express provision for retiree contributions was not sufficient by itself to establish a...
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