Gable v. Sweetheart Cup Co., Inc., s. 94-1234

• Citation: 35 F.3d 851
• Decision Date: 13 September 1994
• Docket Number: 94-1301,Nos. 94-1234,s. 94-1234
• Parties: 18 Employee Benefits Cas. 1897 Robert GABLE; Harvey Spies; John Foley; Eugene Foreman, on behalf of themselves and as representatives of a class of persons similarly situated, Plaintiffs-Appellants, v. SWEETHEART CUP COMPANY, INCORPORATED, a Delaware Corporation; Fort Howard Corporation, a Delaware Corporation; Howard Cup Corporation, a Delaware Corporation; Howard Cup Corporation Medical Plan, and its plan administrators, John Does 1 through 10, Defendants-Appellees, and Sweetheart Holdings, Incorporated, a Delaware Corporation; Sweetheart Cup Medical Plan, and its plan administrators, John Does 11 through 20, Defendants (Two Cases).
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 851

35 F.3d 851

18 Employee Benefits Cas. 1897

Robert GABLE; Harvey Spies; John Foley; Eugene Foreman,

on behalf of themselves and as representatives of

a class of persons similarly situated, Plaintiffs-Appellants, v. SWEETHEART CUP COMPANY, INCORPORATED, a Delaware

Corporation; Fort Howard Corporation, a Delaware

Corporation; Howard Cup Corporation, a Delaware

Corporation; Howard Cup Corporation Medical Plan, and its

plan administrators, John Does 1 through 10, Defendants-Appellees,

and

Sweetheart Holdings, Incorporated, a Delaware Corporation;

Sweetheart Cup Medical Plan, and its plan

administrators, John Does 11 through 20,

Defendants (Two Cases).

Nos. 94-1234, 94-1301.

United States Court of Appeals,

Fourth Circuit.

Argued July 18, 1994.

Decided Sept. 13, 1994.

ARGUED: John Thomas Ward, Quinn, Ward & Kershaw, P.A., Baltimore, MD, for appellants. Charles Ross Diffenderffer, Miles & Stockbridge, Towson, MD, for appellees. ON BRIEF: Thomas Joseph Minton, Kathryn Miller Goldman, Quinn, Ward & Kershaw, P.A., Baltimore, MD, for appellants. Gary C. Duvall, Miles & Stockbridge, Towson, MD, for appellees.

Before WILKINSON and LUTTIG, Circuit Judges, and TRAXLER, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge LUTTIG and District Judge TRAXLER joined.

OPINION

WILKINSON, Circuit Judge:

The question before us is whether a company violated the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001 et seq., by decreasing its retirees' medical benefits provided under an employee welfare benefit plan. We find that the company possessed a statutory right to amend or terminate the employee welfare benefit plan and that the plan documents in no way waived that right. Accordingly, we affirm the district court's grant of summary judgment to the company.

I.

This case arises out of an employee welfare benefit plan established by Maryland Cup Corporation and its successors. In the 1950s, Maryland Cup contracted with John Hancock Insurance Company, which issued to Maryland Cup a "master policy" providing comprehensive medical and life insurance to all Maryland Cup employees, retirees, and their dependents.

In 1974, when ERISA was enacted, Maryland Cup filed the John Hancock master policy with the Department of Labor and thereby established an employee benefit plan known as "The Maryland Cup Corporation Medical Plan." Section T of the master policy, the "General Provisions" section, contained the following "Modification and Reinstatement of Policy" clause:

This Policy may be amended or discontinued at any time by written agreement between the Company and the holder thereof without the consent of or notice to any employee or beneficiary or any other person having a beneficial interest in said Policy....

Plan participants did not receive personal copies of the master policy at that time, but did receive individual certificates of insurance, which stated that

[t]he Policy(ies) under which this certificate is issued may at any time be amended or discontinued by agreement between the Insurance Company and the Policyholder without the consent of or giving of notice to the Insured Person.

Since the plan has been in effect, the company has amended it many times; with each amendment, the company has distributed "inserts" to the individual certificates of insurance informing the plan participants of the latest revisions.

In addition to distributing the certificates, Maryland Cup also issued to its retiring employees a document known as Schedule II, which described the level of health care benefits that each individual employee would receive after retirement. The Schedule II forms informed the retiring employees that the company would "continue this Coverage for you during the remainder of your lifetime at company expense."

In 1983, Fort Howard Company acquired Maryland Cup and assumed responsibility for the company's employee welfare benefit plan. On October 1, 1985, Maryland Cup ¹ converted the plan into a self-insured plan. All the substantive terms of the plan remained the same, however, and John Hancock Insurance Company retained responsibility for administering the amended plan. Maryland Cup advised all plan participants of the pending amendment in September 1985.

The official plan document for the 1985 amended plan, like the original master policy, contained a modification clause stating that "[t]his Plan can be amended[,] modified or terminated at any time by action of the Employer...." In addition, the company inserted the following modification clause in all Schedule II documents distributed to retiring employees under the amended plan:

Whether or not medical coverage will be continued for you as a retiree, and at what level of benefits[,] will depend upon the particular plan provisions and Company policy in effect at any specific time in the future.

In 1986, the company distributed a detailed Summary Plan Description ("SPD") for the amended plan to all plan participants, including all retired employees. The SPD contained the same modification clause quoted above, and also informed the participants that

Maryland Cup Corporation reserves the right to modify, change or terminate the medical coverage for retirees at any time in the future, just as it does for active employees.

In 1989, Sweetheart Cup Company acquired Fort Howard/Maryland Cup. Faced with rising health care costs, Sweetheart Cup decided to make significant changes to the employee welfare benefit plan. The company notified all plan participants that, as of June 1, 1989, the plan would be amended to reduce benefits, increase deductibles, and require each participant to pay a portion of the insurance premiums.

In January 1990, several Maryland Cup retirees filed suit against Sweetheart Cup and its predecessors in federal district court, claiming that their benefits had vested at the time of their retirement and that the 1989 benefit reduction amendment therefore violated ERISA. The district court certified a class of plaintiffs including all of defendants' retired employees (and their beneficiaries) who retired before October 1, 1985, and were participants in the plan as of June 1, 1989. At summary judgment, the magistrate judge issued a report and recommendation finding that (1) the ERISA plan here unambiguously reserved to defendants the right to amend or terminate the employee benefits and therefore failed to demonstrate any intention to vest those benefits at retirement, and (2) defendants failed to provide plaintiffs with an SPD prior to October 1, 1985, but distributed an SPD in 1986 that adequately notified plaintiffs of defendants' right to amend the plan at any time.

In January 1994, the district court adopted the magistrate judge's report and recommendation, and granted summary judgment to defendants. The court stated, however, that this decision was subject to reconsideration upon any individual plaintiff's showing of reliance or prejudice caused by failure to receive the 1986 SPD or any other notification of defendants' right to amend the plan. Because no member of the plaintiff class attempted to make this showing within the requisite thirty-day period, the district court dismissed the case. Plaintiffs now appeal that ruling.

II.

A.

Plaintiffs' primary contention on appeal is that Sweetheart Cup violated ERISA by modifying the company's health insurance plan. Plaintiffs argue that they had a vested right to receive lifetime benefits after retirement, and that the company thus had no right to unilaterally change the level of their benefits.

We disagree. It is well-established that ERISA does not prohibit a company from terminating or modifying previously offered benefits that are not vested. See Wise v. El Paso Natural Gas Co., 986 F.2d 929, 935 (5th Cir.1993); Owens v. Storehouse, Inc., 984 F.2d 394, 397 (11th Cir.1993). Although ERISA contains a strict vesting requirement for pension benefits, it expressly exempts employee welfare benefit plans from that requirement. See 29 U.S.C. Sec. 1051(1); Sejman v. Warner-Lambert Co., Inc., 889 F.2d 1346, 1348 (4th Cir.1989). Accordingly, a plan participant's interest in welfare benefits is not automatically vested, and employers have a statutory right to "amend the terms of the plan or terminate it entirely." Biggers v. Wittek Indus., Inc., 4 F.3d 291, 295 (4th Cir.1993). Because the health insurance benefit plan at issue here constitutes an "employee welfare benefit plan" under ERISA, see 29 U.S.C. Sec. 1002(1) (defining "employee welfare benefit plan" as any plan providing "medical, surgical, or hospital care or benefits, or benefits in the event of sickness"), the company possessed the right to change or terminate the medical benefits provided under the plan. See Doe v. Group Hospitalization & Medical Servs., 3 F.3d 80, 84 (4th Cir.1993) ("the employer may modify or withdraw [health care] benefits at any time"); Wise, 986 F.2d at 935.

An employer may "waive[ ] its statutory right to modify or terminate benefits," however, by voluntarily undertaking an obligation to provide vested, unalterable benefits. Id. at 937; see Boyer v. Douglas Components Corp., 986 F.2d 999, 1005 (6th Cir.1993) ("the parties can agree to vest a welfare benefit plan"). Because such an obligation constitutes an extra-ERISA commitment, however, courts may not lightly infer the existence of an agreement to vest employee welfare benefits. See Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1517 (8th Cir.1988); see also Howe v. Varity Corp., 896 F.2d 1107, 1110 (8th Cir.1990) (holding that courts may not infer an intent to vest from the "mere fact that employee welfare benefits continue in retirement"); Wise, 986 F.2d at 938 (holding that "silence" as to an employer's right to modify the plan does not "impliedly cede the right to later amend or discontinue coverage")....