Bland v. Fiatallis North America, Inc.

• Decision Date: 15 March 2005
• Docket Number: No. 04-2703.,04-2703.
• Citation: 401 F.3d 779
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: Lou BLAND, Edward Hodgeman, Geraldine Rosato, Ervin Shores, and Richard Horcher, Plaintiff-Appellants, v. FIATALLIS NORTH AMERICA, INC., Case New Holland, Inc., and CNH Health and Welfare Plan, Defendants-Appellees.

401 F.3d 779

Lou BLAND, Edward Hodgeman, Geraldine Rosato, Ervin Shores, and Richard Horcher, Plaintiff-Appellants, v. FIATALLIS NORTH AMERICA, INC., Case New Holland, Inc., and CNH Health and Welfare Plan, Defendants-Appellees.

No. 04-2703.

United States Court of Appeals, Seventh Circuit.

Argued January 19, 2005.

Decided March 15, 2005.

Jon D. Robinson (argued), Bolen Robinson & Ellis, Decatur, IL, for Plaintiff-Appellants.

Mark A. Casciari (argued), Seyfarth Shaw, Chicago, IL, for Defendants-Appellees.

Before CUDAHY, MANION and EVANS, Circuit Judges.

CUDAHY, Circuit Judge.

A "lifetime" can be a slippery concept in the context of retiree benefits litigation under the Employee Retirement Income Security Act ("ERISA"), 42 U.S.C. §§ 1001 et seq. (2005). This case asks us to consider, on the heels of Vallone v. CNA Financial Corporation, 375 F.3d 623 (7th Cir.2004), whether designating retiree benefits as "lifetime"really means "for life." Unlike previous cases, where the interpretation of explicit "lifetime" language was constrained by reservation of rights clauses allowing an employer to modify or terminate retiree welfare benefits, the plan documents at issue here contain no such limiting language. Accordingly, we find that the "lifetime" language, as used here, is ambiguous as to vesting, and so we reverse the grant of summary judgment to the defendant and remand this case for further proceedings.

I.

The plaintiffs in the present case are former retired salaried and hourly employees of Fiatallis North America, Inc. ("FANA"), who retired in the late 1970s through 1988 and their surviving spouses. Most are at least eighty years of age and are presumably on fixed incomes. Before or upon their retirement, each of the plaintiffs received documents known as "summary plan descriptions" ("SPDs") that described the medical and dental benefits that they would receive and that allegedly contained explicit promises that retirees and their spouses would continue to receive these benefits at little or no cost until their death.

Of the five SPDs at issue in this case, three refer to salaried employees, and two address hourly employees. We will discuss the SPDs in the chronological order of their issuance. An SPD related to a "Benefit for Retired Salaried Employees Plan," which covers retired salaried employees who retired after Dec. 31, 1976, provides that health insurance and dental "... coverage remains in effect as long as your or your surviving spouse are living." The SPD related to a "Group Health Plan for Salaried Active Employees," dated January of 1978 and distributed to active salaried employees, states in pertinent part that upon retirement "benefits continue to be paid for by the Company," and that employees who wish to continue major medical coverage must "continue to pay [their] share of the cost."¹ With respect to retirees' spouses, the plan document states that the "spouse and any eligible dependents ... can continue the protection" until the spouse "dies, remarries, or is covered by another employee's group plan"; spouses are "required to make monthly payments for both Basic and Major Medical coverage." The two plan documents applicable to hourly employees are essentially identical. The "Health Benefits Plan" and "Benefits for Retired Hourly Employees Plan" documents, created in January of 1978 and distributed to hourly employees at FANA's Carol Stream and Deerfield plants, both state that "... [b]enefits are provided to help you meet the expense of illness, injury, and other similar emergencies within your family" and that "[i]f a retired employee dies, the surviving spouse will have basic coverage continued for his or her lifetime at no cost." Finally, plan documents dated March and April of 1985, titled "Benefit Fact Sheets,"² that were provided to salaried employees affected by the shutdown of FANA's Springfield plant, state that "[s]alaried employees for retirement will have the retired employee benefits in effect prior to March 1, 1985."³ None of these documents contain express reservation of rights clauses.

In the mid-1980s, FANA and its Italian parent corporation sought advice from three outside law firms as to whether these retiree plan benefits were vested. The employer had in mind an "onion solution" to deal with rising insurance costs, under which retiree benefits would be gradually peeled away. Lou Bland, a named retiree plaintiff, who served as a former vice-president and member of the Employee Benefits Committee, received copies of documents discussing the onion solution in the course of his employment, and retained these documents upon retirement.

In 1989, FANA published another SPD for active employees that altered the description of plan benefits and expressly reserved the right to amend benefits; this document did not state that these changes were effective with respect to retirees, and no plaintiff received it. Late in 2000, however, the plaintiffs received plan documents containing new benefit descriptions, which stated that costs for medical and dental coverage would dramatically increase as of February 1, 2001 and warned that benefits could be modified even after retirement.⁴

Angered by these modifications, plaintiffs filed suit in Illinois state court, contending that FANA had unilaterally reduced vested benefits by greatly increasing the cost to retirees. The case was then removed by FANA to federal district court. After discovery began, the plaintiffs uncovered documents discussing the "onion solution," and turned the documents over to defense counsel on the grounds that the documents might be privileged. FANA then requested a protective order claiming that the documents were privileged as attorney-client communications or work product and moved for the appointment of a magistrate judge to determine privilege issues. After conducting an in camera review, the magistrate judge entered a recommendation that most of the documents, including portions discussing the onion solution, were protected and inadmissible since they contained communications including attorney advice and relating exclusively to amendment or termination of the plan. The magistrate also rejected the plaintiffs' claims that numerous exceptions to the privilege applied.

After the district court accepted the magistrate's recommendations, the plaintiffs filed an amended complaint alleging that FANA had established a new health plan less favorable to plaintiffs in February of 2001 in breach of ERISA contract obligations and that FANA had made oral and written promises vesting health benefits that had been breached, thus violating ERISA fiduciary duties and the principles of estoppel. The plaintiffs never sought to certify any class under Fed.R.Civ.P. 23. The parties then filed cross-motions for judgment on the pleadings as to the alleged breach of the ERISA contract obligations claim. The district court awarded judgment on the pleadings to FANA, and the plaintiffs then voluntarily dismissed their other claims without prejudice in order to pursue an appeal of the ruling relating to the alleged breach of ERISA contract obligations. After the district court questioned whether these matters were in fact ripe for appeal, the plaintiffs agreed to voluntarily dismiss their breach of fiduciary duty and estoppel claims with prejudice. Thus, the only issues before us are whether the plan documents contain language that unambiguously vested ERISA contract rights or that is so ambiguous as to require a trial on the issue of vesting. There is a further question whether the district court erred in not admitting certain documents into evidence under exceptions to the privilege doctrine.

We review the decision to grant FANA's motion for judgment on the pleadings de novo. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th Cir.2000).

II.

A.

Today's employment market is heavily impacted by the abruptly rising cost of health care, and the ensuing increases in health insurance premiums. The plan documents in the present case, created in the 1970s and 1980s, likely were the product of a social reality different from that now prevailing. Before 1980, employers in many cases, in granting health benefits, did not consider a possible need to modify them in the future. Only later with "spiraling medical costs, heightened foreign competition, epidemic corporate take-overs and the declining bargaining power of labor" was thought given to modifying benefits granted to retirees. See Bidlack v. Wheelabrator Corp., 993 F.2d 603, 613 (7th Cir.1993) (Cudahy, J., concurring). Thus, at the time the relevant plan documents were created, there may not have been much thought given to any language affecting possible future changes in benefits. This expectation has now changed, and many courts have rejected retirees' attempts to show that their benefits have vested under the language of plan documents. Meanwhile, retirees living on limited fixed incomes can be squeezed by unanticipated increases in medical costs. It is with this historical context in mind that we turn to the question whether the FANA plan documents vested retiree health benefits here.

Under ERISA, employee benefit plans are classified either as welfare benefit plans or as pension plans. See 29 U.S.C. §§ 1002(1), 1002(2)(A) (2005). Pension plans provide retirement income to employees or allow employees to defer the receipt of income until or beyond the termination of the covered employment. 29 U.S.C. § 1002(2)(A) (2005). Welfare benefits, on the other hand, provide "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment...." 29 U.S.C. § 1002(1) (2005). While pension benefits are subject to strict vesting requirements, welfare benefits such as health and life insurance are vested only if the plan contract so provides. 29 U.S.C. § 1051(1) (2005). See also Curtiss-Wright Corp. v. Schoonejongen, 514...