Cairns v. Bridgestone/Firestone, Inc.

• Decision Date: 04 June 1992
• Docket Number: No. 91-CV-1553.,91-CV-1553.
• Citation: 802 F. Supp. 152
• Parties: Joseph CAIRNS, et al., Plaintiffs, v. BRIDGESTONE/FIRESTONE, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

802 F. Supp. 152

Joseph CAIRNS, et al., Plaintiffs, v. BRIDGESTONE/FIRESTONE, INC., et al., Defendants.

No. 91-CV-1553.

United States District Court, N.D. Ohio, E.D.

June 4, 1992.

COPYRIGHT MATERIAL OMITTED

Paul Leslie Jackson, Gary W. Spring, Roetzel & Andress, Akron, Ohio, for plaintiffs.

Robert S. Walker, Daniel C. Hagen, Jones, Day, Reavis & Pogue, North Point, Cleveland, Ohio, Peter C. Rousos, Firestone Tire & Rubber Co. Dept. of Law, Akron, Ohio, Willis J. Goldsmith, Richard F. Shaw, Jones, Day, Reavis & Pogue, Washington, D.C., for defendants.

ORDER

SAM H. BELL, District Judge.

Currently pending before the court in the above-captioned matter are cross motions for summary judgment filed by the adversaries to this cause pursuant to Fed. R.Civ.P. 56. Plaintiffs Joseph Cairns, Tom Salisbury, Robert Lyman Smith, Martha Nelson, and John Jarema instituted this action on August 7, 1991 with the filing of a four-count complaint against defendants Bridgestone/Firestone, Inc. (hereinafter the Company) and the Bridgestone/Firestone, Inc. Pension Board (hereinafter the Pension Board). An amended complaint was filed by plaintiffs on August 28, 1991. The amended complaint seeks recovery under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., in the first and third counts. Plaintiffs also allege breach of a settlement agreement in the second count.¹

I. BACKGROUND

Plaintiffs are former salaried employees and current retirees of the Company. In 1985, they and others brought a class action against the Company (then known as the Firestone Tire and Rubber Company) alleging violations of ERISA and seeking an injunction against the implementation of a 1984 ERISA benefits plan and a declaration seeking reinstatement of a 1982 ERISA benefits plan. Kennedy, et al. v. Firestone Tire & Rubber Company, Case No. C85-2084-A (N.D.Ohio, Manos, J.). The parties to that cause engaged in lengthy settlement negotiations which culminated in a settlement agreement on June 2, 1989 under which the Company is obligated to provide lifetime benefits to thousands of retirees. The settlement agreement was reached as a result of negotiations over the terms of the 1984 ERISA plan and, in relevant part, delineates the Company's obligation to provide lifetime ERISA benefits to thousands of retirees.

On July 1, 1988, approximately one year before the parties reached settlement in the Kennedy suit, Congress enacted the Medicare Catastrophic Coverage Act of 1988 (the MCCA). The MCCA substantially increased Medicare Part A, Part B, and prescription drug benefits as follows: Part A benefits would increase on January 1, 1989; Part B benefits would increase on January 1, 1990; and prescription drug benefits would increase on January 1, 1991. The MCCA also contained a "Maintenance of Effort" provision which required employers to pass on any cost savings inuring to them from the MCCA for the year 1989 onto their employee beneficiaries. During the settlement negotiations, the Company took into account the effect the MCCA would have in the future on its obligation to provide these lifetime benefits to the retirees and the costs thereof. See Affidavit of Jeffrey Pennock, former Director of Benefits and Risk Management for the Company. Specifically, the Company based its proposals during the settlement negotiations in part on the savings to it resulting from the increase in benefits conferred by the MCCA. Id. Due to the fact that Medicare would provide these benefits in the future, in other words, the Company's costs incurred in providing lifetime benefits would be less than if the MCCA had not been enacted. See also Affidavit of Jeffrey Gathers, consulting actuary in the management consulting firm of Towers, Perrin, Forster and Crosby.

The parties to the Kennedy action took into account the possibility that governmental benefits might be reduced in the future thereby causing the Company to incur increased costs in ensuring that continuing lifetime benefits are provided. This mutual concern is manifested in the settlement agreement in a provision which provides that if the Company's costs increase due to a reduction in governmental benefits, it can pass these costs on to the retirees in the form of a supplemental premium. The relevant portion of the settlement agreement provides as follows:

Notwithstanding any other provision to this Settlement Agreement, Firestone will not assume any increased costs resulting from any reduction of benefits under Medicare or any other government health care or related program, but shall collect a supplemental premium in the manner provided in Paragraph 7.F and in an amount actuarially determined by Firestone to cover increased costs resulting from any such reduction of benefits.

Id. at ¶ 7(H).

While the parties were negotiating the settlement agreement, they were also negotiating the language of a forthcoming benefit plan styled the Comprehensive Medical Expense Benefits Plan (hereinafter the Plan) and a summary description of this Plan. The Plan was based upon the settlement agreement and was implemented approximately one month later, on July 14, 1989. The Plan contains a provision nearly identical to that just quoted from the settlement agreement, as follows:

The Company, in addition to the increase in premium contributions permitted by Subsections (b) and (c), may impose and collect supplemental premium contributions in an amount actuarially determined from time to time by the Company, without regard to the limitation on premium contribution increases contained in Subsection (b), equal to the increased cost of the Plan resulting from any reduction of benefits provided as of January 1, 1989 by Medicare or any other governmental health care or related program.

Id. at § 6.03(f). The parties agree that there is no practical difference between the language of the two provisions.

On January 1, 1990, the MCCA was repealed by the Medicare Catastrophic Coverage Repeal Act of 1989. The Company then hired the management consulting firm of Towers, Perrin, Forster & Crosby to determine whether the repeal of the MCCA would result in any future increased costs to the Company. The consulting firm concluded that the repeal shifted costs to the Company over the life of the Plan which costs Medicare would have otherwise covered. See Affidavit of Gathers. Based upon this assessment, the Company announced in July of 1990 that, pursuant to § 7(H) of the settlement agreement and § 6.03(f) of the Plan, it would assess a supplemental premium to cover its increased costs due to the repeal of the MCCA. See Affidavit of Samuel Torrence, Vice President of Industrial Relations for the Company. The supplemental premium amounted to an increase of $3.00 per month in contributions assessed upon the retirees. Id.

Pursuant to the Plan's administrative appeal procedure, plaintiffs in November of 1990 challenged the imposition of the supplemental premium before the Pension Board. Under the Plan, the Pension Board has the "sole and absolute discretion", inter alia, to interpret the Plan's provisions and to resolve disputes arising thereunder. The relevant section provides, in pertinent part, as follows:

The Plan shall be administered by the Pension Board appointed by the Company. The Pension Board shall have such authority and perform such duties, consistent with the Plan, as may be determined from time to time by the Company. Without limiting the generality of the foregoing, the Pension Board shall have sole and absolute discretion to interpret where necessary the provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to determine the rights and status under the Plan of Covered Persons or other individuals, to resolve questions or disputes arising under the Plan, and to make any determinations with respect to the benefits payable hereunder and the persons entitled thereto as may be necessary for the purposes of the Plan.

. . . . .

All decisions of the Pension Board as to the facts of any case, as to the interpretation of any provision of the Plan or its application to any case, and as to any other interpretive matter or other determination or question under the Plan shall be final and binding on all parties affected thereby, subject to the provisions of Article VII.

Id., at § 10.01. Plaintiffs argued before the Pension Board that the assessment of the supplemental premium was incorrect under the language of § 6.03(f) of the Plan because the repeal of the MCCA either did not "reduce" existing Medicare benefits or did not result in "increased costs" to the Company for benefits which might be said to have been reduced.

In February of 1991, the Pension Board concluded that § 6.03(f) of the Plan authorized the Company's assessment of the supplemental premium. In a letter written on February 19, 1991 to counsel for plaintiffs, the Pension Board communicated its findings in this regard as follows:

For the reasons set forth below, the Pension Board has concluded that the repeal of the Medicare Catastrophic Coverage Act of 1988 ("Act") on December 13, 1989 constituted "an increased cost of the Plan resulting from a reduction of Medicare benefits provided as of January 1, 1989 by Medicare ..." and that the supplemental premium of $3.00 per participant per month was properly assessed. A brief recitation of the relevant facts may best explain the Pension Board's rationale for this decision.

. . . . .

On July 1, 1988, the Act was signed into law. The Act contained, among other things, provisions which increased Medicare catastrophic medical benefits. The additional benefits under Medicare would have reduced the cost of providing retiree health care benefits under employer-sponsored retiree health care plans, such as the Plan.

The Medicare Catastrophic Coverage Repeal Act of 1989 which, as its name

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