Cnh Am. Llc v. Int'l Union

• Decision Date: 16 May 2011
• Docket Number: No. 09–2001.,09–2001.
• Citation: 190 L.R.R.M. (BNA) 3034,645 F.3d 785
• Parties: CNH AMERICA LLC, Plaintiff–Appellant,v.INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW), Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

645 F.3d 785
190 L.R.R.M. (BNA) 3034

CNH AMERICA LLC, Plaintiff–Appellant,
v.
INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW), Defendant–Appellee.

No. 09–2001.

United States Court of Appeals, Sixth Circuit.

Argued: June 8, 2010.Decided and Filed: May 16, 2011.

[645 F.3d 787]

ARGUED: Bobby R. Burchfield, McDermott Will & Emery LLP, Washington, D.C., for Appellant. Julia Penny Clark, Bredhoff & Kaiser, P.L.L.C., Washington, D.C., for Appellee. ON BRIEF: Bobby R. Burchfield, Jason A. Levine, McDermott Will & Emery LLP, Washington, D.C., Norman C. Ankers, Honigman Miller Schwartz and Cohn LLP, Detroit, Michigan, for Appellant. Julia Penny Clark, Bredhoff & Kaiser, P.L.L.C., Washington, D.C., for Appellee.Before: DAUGHTREY, GILMAN and SUTTON, Circuit Judges.SUTTON, J., delivered the opinion of the court, in which GILMAN, J., joined. DAUGHTREY, J. (pp. 795–803), delivered a separate opinion concurring in part and dissenting in part.

OPINION SUTTON, Circuit Judge.

This appeal, one of a never-ending string of healthcare-benefit disputes in this circuit, turns (unsurprisingly) on the interrelationship of two lawsuits. In the first lawsuit, a group of retirees, funded by the UAW, obtained a preliminary injunction preventing CNH from terminating their healthcare benefits. See Yolton v. El Paso Tenn. Pipeline Corp., No. 02–75164 (E.D.Mich.) R.80. That litigation is still pending. See No. 02–75164 (E.D.Mich.). In the second lawsuit, CNH sued the UAW, claiming that the UAW's participation in the first lawsuit violated a collective bargaining agreement (CBA) between the parties and that the UAW, during the negotiations of the CBA, committed several state law torts. In addressing the second lawsuit, the one at issue in this appeal, the district court dismissed the claims, holding that the UAW did not breach the CBA and that federal law preempted CNH's additional state law claims. For the reasons set forth below, we affirm the district court's conclusion that the UAW did not breach the relevant CBA but reverse its preemption decision.

I.

Here is the cast of characters:

* CNH America makes farming and construction equipment and is the plaintiff in this case.

* Case Corporation is CNH's former name.

* Tenneco, Inc. was the parent company of CNH until 1994, when Tenneco sold its interest in CNH in an initial public offering (the reorganization).

* El Paso Tennessee Pipeline Company is the current name of Tenneco.

[645 F.3d 788]

* UAW is a union that represented the relevant employees of all of these companies before they retired and is the defendant in this case.

Here is the plot, such as it is:

Between 1971 and 1994, Case entered into several CBAs with the UAW in which Case allegedly agreed to provide free health insurance to retirees and their surviving spouses if the employees retired before the expiration of the CBA. As part of the reorganization in 1994, CNH assumed Case's CBA obligations, but Tenneco promised to indemnify CNH for any pre-reorganization retiree healthcare expenses. See Reese v. CNH America LLC, 574 F.3d 315, 317–18 (6th Cir.2009); Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571, 574–77 (6th Cir.2006).

In 1997, CNH and the UAW began negotiating a new CBA. At about that time, Tenneco told the pre-reorganization retirees that it would be capping the company's obligations to pay retiree healthcare benefits and that the retirees would soon have to pay $56 per month in health-insurance premiums, labeled “above-cap costs.” The UAW objected to the change, claiming that CNH remained responsible for the pre-reorganization retirees' healthcare benefits, and this dispute became a “key issue” in the 1998 negotiations. R.1 ¶ 18.

The parties reached what seemed to be a compromise. CNH and the UAW formed a Voluntary Employees' Beneficiary Association (VEBA), see I.R.C. § 501(c)(9), to fund the retirees' above-cap costs. CNH contributed $24.7 million to the VEBA, and the UAW contributed an additional $2.8 million. The parties documented the 1998 CBA in a 172–page agreement, and they documented the VEBA agreement in the following three-paragraph “letter of understanding”:

During the 1998 negotiations, [CNH] and [UAW] had extensive discussions of the medical plan maintained by [Tenneco] for pre IPO retirees. Although these retirees retired prior to the formation of [CNH] and sales of its stock to the public, [CNH] has agreed with the UAW to create a VEBA and to fund it with $24,700,000 in order to pay a portion of the costs of benefits above the cost cap limit under the [Tenneco] Plan (plus $300,000 in 1998 to pay for the 1998 Medicare Part “B” [c]overage).

An additional 2.8M from the economic settlement will be contributed for total VEBA funding of approximately $27,800,000.

The parties recognize that the VEBA is intended to complete [CNH]'s funding of the above cap cost and that [CNH] will not be required to make any further contributions to the VEBA from its own funds.

R.1.2 at 96. The CBA referenced and incorporated the VEBA agreement.

Medical costs and insurance premiums rose more than expected, and the pre-reorganization retirees exhausted the VEBA funds in August 2002, two years short of the 2004 culmination of the 1998 CBA. In October 2002, the UAW and six retirees filed a class-action lawsuit against CNH and Tenneco seeking “lifetime, free health care benefits.” R.1 ¶ 30; Yolton, 435 F.3d at 574. In December, the UAW and the retirees voluntarily dismissed the suit without prejudice, and the retirees immediately re-filed the lawsuit without the UAW as a party, although the UAW continued to fund the litigation. In 2003, the district court preliminarily enjoined CNH from discontinuing the payment of the retirees' above-cap costs during the lawsuit and granted CNH summary judgment on its indemnification claim against Tenneco. R.1 ¶ 34;

[645 F.3d 789]

Yolton v. El Paso Tenn. Pipeline Co., 318 F.Supp.2d 455 (E.D.Mich.2003). A panel of our court affirmed the preliminary injunction and indemnification ruling. See Yolton, 435 F.3d at 571.

In August 2008, CNH sued the UAW, claiming that, by funding the Yolton litigation, the UAW had breached a covenant not to sue contained in the VEBA agreement. CNH also added several tort claims under Wisconsin law arising from the 1998 negotiations: breach of an implied warranty of authority; negligent misrepresentation; and intentional misrepresentation. The UAW filed a motion to dismiss, which the district court granted, concluding that the UAW did not breach the VEBA agreement, that the Labor Management Relations Act (LMRA or Act) preempted CNH's state law claims and in the alternative that CNH failed adequately to plead its intentional misrepresentation claim.

II.

By funding the Yolton litigation, CNH claims, the UAW breached the third paragraph of the VEBA agreement:

The parties recognize that the VEBA is intended to complete [CNH]'s funding of the above cap cost and that [CNH] will not be required to make any further contributions to the VEBA from its own funds.

R.1.2 at 96. As CNH reads this provision, it contains a “covenant not to sue,” CNH Br. at 16–24, which the UAW allegedly breached when it initiated, then agreed to fund, the Yolton litigation.

The text of this provision shows otherwise. Not a word in the paragraph says that the UAW promises not to sue CNH over the pre-reorganization retirees' healthcare benefits. And not a word in the paragraph even mentions the UAW or its obligations. Of the five words one might expect to see in such a promise—UAW, covenant, not, sue, CNH—only two of them (CNH and not) appear in the provision. That is because the provision focuses on CNH 's burdens and benefits: CNH will “fund” the above-cap costs, and CNH will not have to contribute any additional funds to the VEBA. We break no new contractual ground or any convention of meaning by insisting that a provision purporting to obligate the UAW to do something, or refrain from doing something, must mention the obligor (the union) and the nature of the obligation (not to sue) by name.

The first two paragraphs of the VEBA agreement do not fill this gap. Everything in the agreement points to a foundation for a compromise: The agreement describes the extensive negotiations over the retirees' healthcare costs and the two sides' obligations to contribute to the VEBA, not to any obligations with respect to suing the other. Although these two paragraphs and the third one may supply a firm foundation for the argument that CNH committed to offer $24.7 million, and no more, to resolve any healthcare obligations with respect to these retirees, that suggests CNH has a basis for winning the Yolton litigation, not that the UAW had to refrain from initiating it. The VEBA could provide CNH with a defense to a lawsuit without precluding the UAW from suing to find out.

Think of it this way. Had the agreement contained such a covenant, that would mean the UAW could not have sued CNH even to enforce the company's commitment to fund the VEBA with $24.7 million. Why would the UAW enter such an agreement, one that obligated CNH to do something but prohibited the UAW from enforcing it? Had that been an acceptable solution to the parties' ongoing disagreements, they could have resolved them long ago. The most that CNH can

[645 F.3d 790]

say, if we read all of the inferences its way, is not that the agreement contains a general covenant by the UAW not to sue CNH, but that it contains a covenant not to win certain types of additional funding obligations from CNH. That, however, is not a covenant not to sue; it is a defense to a lawsuit.

The same point defeats CNH's contention that the agreement is ambiguous, in view of uncertainties about the meaning of “funding” or “further contributions.” The relevant question is whether the agreement contains a covenant not to sue, and it contains no ambiguity on that score. See Zirnhelt v. Mich. Consol. Gas Co., 526 F.3d 282...