Armbruster v. K-H Corporation

Decision Date17 June 2002
Docket NumberNo. 97-CV-75792-DT.,97-CV-75792-DT.
Citation206 F.Supp.2d 870
PartiesDonald ARMBRUSTER, et al., Plaintiffs, v. K-H CORPORATION, Defendant.
CourtU.S. District Court — Eastern District of Michigan

Charles Gottlieb, Esq., Bingham Farms, MI, for Plaintiffs.

Scott A. MacGriff, Esq., Francis R. Ortiz, Esq., Detroit, MI, for Defendant.

OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

The above-captioned ERISA action is presently before the Court on Defendant K-H Corporation's Motion for Summary Judgment.1 Plaintiffs have responded to Defendant's Motion to which response Defendant has replied. Supplemental briefs have also been filed by both parties. Having reviewed and considered the parties' briefs and supporting documents and the Court's entire record of this matter, the Court has determined that oral argument is not necessary. Therefore, pursuant to Eastern District of Michigan Local Rule 7.1(e)(2), this matter will be decided "on the briefs." This Opinion and Order sets forth the Court's ruling.

II. PROCEDURAL AND FACTUAL BACKGROUND
A. THE PARTIES

Plaintiffs Donald Armbruster, John Gustke, Robert Rawlings, William Varney, Robert Butler, Maynard Brandt and Harold Messacar are former salaried employees of the Fruehauf Corporation, the predecessor-in-interest of Defendant K-H Corporation. All seven of the named Plaintiffs retired from Fruehauf before July 14, 1989. Plaintiffs Armbruster, Gustke, Rawlings, Varney and Butler retired under Special Early Retirement Plans offered by Fruehauf in 1982, 1987 and 1988.2 Plaintiffs Brandt and Messacar retired under the company's standard retirement plan in October 1981 and February 1985, respectively.

Defendant K-H Corporation is the successor-in-interest of the business entity formerly known as Fruehauf Corporation.3 Fruehauf was, at one time, one of the world's largest manufacturers of truck trailers and shipping containers. Plaintiffs worked in Fruehauf's trailer operations. On July 14, 1989, Fruehauf sold its trailer operations, along with its maritime operations, to a subsidiary of Terex Corporation known as FRH Acquisition Corporation ("FRH"), pursuant to a purchase agreement dated as of March 27, 1989. FRH subsequently changed its name to "Terex Trailer Corporation" and was later renamed "Fruehauf Trailer Corporation." As required by the terms of the purchase agreement, the former Fruehauf Corporation, now divested of its trailer and maritime businesses, changed its corporate name to "K-H Corporation." The change of corporate name occurred on August 4, 1989.

Although Plaintiffs had retired from the old Fruehauf Corporation prior to July 14, 1989, the date of the sale of the company's trailer operations to the Terex subsidiary now known as Fruehauf Trailer Corporation, pursuant to the terms of the March 27, 1989 purchase agreement, the new Fruehauf Trailer Corporation assumed "all debts, liabilities, and obligations" of old Fruehauf [now known as K-H Corporation], including all liabilities to former employees of the transferred Fruehauf trailer and maritime businesses under Fruehauf's employee benefit and pension plans. See Defendant's Ex. A.4

B. MEDICAL INSURANCE COVERAGE PROVIDED TO FRUEHAUF RETIREES

Beginning in 1979 through the closing of the sale of the trailer business, the cost of retiree medical insurance for salaried retirees had been borne entirely by Fruehauf Corporation. Not long after the sale of the trailer and maritime businesses, salaried retirees of the former Fruehauf Corporation were advised in writing by the new Fruehauf Trailer Corporation that effective January 1, 1990, each retiree would be required to contribute to the cost of his or her retiree medical coverage, and were advised of their required annual contribution amount. See Defendant's Ex. B and B1 through B4.5 Then, in April 1994, Fruehauf Trailer announced that effective June 1, 1994 medical coverage for retirees and spouses of retirees age 65 or older would only be offered through a "Medi-Gap" medical insurance program offered as part of the American Association of Retired Persons ("AARP") Group Health Insurance Program. See Defendant's Ex. B5. Retirees and spouses under age 65 continued to be covered under the Fruehauf program until they reached age 65. Id. Under both the AARP and the Fruehauf program for under 65-year-old dependents, retirees remained responsible for paying a portion of their medical coverage. Id.

On June 15, 1994, Plaintiffs instituted an action against Fruehauf Trailer Corporation challenging the company's decision effective January 1, 1990 requiring them to pay a portion of their medical insurance costs. See Fuller, et al. v. Fruehauf Trailer Corp., 94-CV-72333-DT. (the "Fuller action").6 All of the Plaintiffs in the instant action were also Plaintiffs in the Fuller action.7 The Plaintiffs alleged the very same claims in the Fuller action that they allege now in the instant action.

In Fuller, the Plaintiffs sued Fruehauf Trailer Corporation, i.e., the company that assumed the liabilities of their former employer, alleging that they had been promised fully-paid health care benefits "for life," and that by failing to continue to provide post-retirement medical benefits at company expense after January 1, 1990, Fruehauf Trailer violated the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq.

In September 1996, this Court certified the action as class action, the class being "all persons who as of July 14, 1989 were participants or beneficiaries of Defendant's medical plan for salaried employees and who retired between January 1, 1979 and October 31, 1989," dividing this class into two sub-classes: (1) those persons who retired under one of the Special Early Retirement Programs between 1982 and 1988 and (2) those persons who retired pursuant to a standard retirement. See Fuller v. Fruehauf Trailer Corp., 168 F.R.D. 588, 605 (E.D.Mich.1996).8

Less than a month after the Court issued its class certification decision, on October 7, 1996, Fruehauf Trailer Corporation filed for Chapter 11 bankruptcy. As a consequence, the Fuller case was automatically stayed, and then on December 20, 1996, the case was administratively closed.

The Fruehauf Trailer bankruptcy proceedings revealed that the company would not emerge from Chapter 11 and would be liquidated. Fruehauf Trailer advised retirees in the spring of 1997 that it would cease providing them with medical insurance coverage effective April 15, 1997. See Defendant's Ex. E. (The bankruptcy was closed on April 15, 1997.) However, on May 27, 1997, K-H Corporation sent letters to Fruehauf retirees, advising them that K-H was "the successor to FTC" and would continue to provide them with medical insurance coverage "on the same terms and conditions that FTC provided coverage on April 15, 1997." See Defendant's Ex. F.9

The Plaintiffs were not satisfied with being provided with medical insurance coverage on the same terms and conditions that Fruehauf Trailer had provided them coverage, i.e., on a shared-cost basis. Therefore, on November 21, 1997, Plaintiffs filed the instant action alleging the very same ERISA and RICO claims they alleged in the pre-bankruptcy lawsuit challenging the decision to require retirees pay for a portion of the cost of medical insurance coverage, only this time they asserted these claims against K-H Corporation.10

1. THE FRUEHAUF RETIRED SALARIED EMPLOYEES MEDICAL INSURANCE PLAN

The Fruehauf Corporation medical insurance plan at issue in this case is part of a Group Insurance Plan for life insurance, accidental death and dismemberment insurance, and medical and dental benefits provided to Fruehauf salaried employees and retirees through a policy issued by Connecticut General Life Insurance Company. During the 1979-1989 time period of relevance to this action, Fruehauf issued several booklets summarizing the Plan (referred to herein as "plan descriptions," "summary plan descriptions" or "SPDs"). Pertinent portions of seven such SPDs have been submitted by the parties here for the Court's consideration.

Two of the plan descriptions, i.e., the SPDs issued in 1979 and in 1986, expressly state that they describe Fruehauf Corporation's "Group Insurance Plan for Salaried Retired Employees." The other plan descriptions, i.e., those issued in 1981, 1983, 1984, 1985, and 1987 are not expressly limited to retirees. These are captioned as Fruehauf Corporation's "Group Insurance Plan for Salaried Employees." However, each of the SPDs that are not specifically designated as summary descriptions of salaried retirees' plans contain specific provisions which state that medical insurance coverage provided under the Salaried Employees' Group Insurance Plan to salaried employees will be continued for any salaried employee (and the employee's eligible dependents) if he or she retires from active service under the Salaried Retirement Plan on or after January 1, 1979. [See e.g., Plaintiffs' Ex. 29, 1981 Group Insurance Plan booklet, p. 41.]

The SPD issued in January 1979 provided in pertinent part as follows:

Any permanent full-time Salaried Employee... who is covered under the Salaried Retirement Plan on or after June 1, 1976 will be eligible for the insurance on his retirement date.

* * * * * *

The insurance will be continued for a surviving spouse, but coverage will terminate if that spouse remarries.

* * * * * *

The insurance on the surviving spouse of a deceased Retired Employee will be continued without cost until the surviving spouse remarries.

* * * * * *

The cost of the plan is paid by the company.

[See Plaintiffs' Ex. 28]

The 1981 summary plan description provided:

If you retire from Active Service under the Salaried Retirement Plan on or after January 1, 1979...

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