Jensen v. Sipco, Inc.

• Decision Date: 18 November 1994
• Docket Number: No. 93-3223,93-3223
• Citation: 38 F.3d 945
• Parties: 18 Employee Benefits Cas. 2188 Fred G. JENSEN; James J. Monahan; Richard F. Kriegler; Walter C. Clark, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. SIPCO, INC.; Monfort, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 945

38 F.3d 945

18 Employee Benefits Cas. 2188

Fred G. JENSEN; James J. Monahan; Richard F. Kriegler Walter C. Clark, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. SIPCO, INC.; Monfort, Inc., Defendants-Appellants.

No. 93-3223.

United States Court of Appeals Eighth Circuit.

Submitted April 13, 1994.

Decided Oct. 13, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied Nov. 18, 1994.

Sylvia Davidow, Houston, TX, argued for appellant (William Bruckner and Charles Sykes on the brief).

James Hanks, Sioux City, IA, argued for appellee (P.L. Nymann, and Steven Kohl, Sioux City, IA, on the brief).

Before LOKEN, Circuit Judge, FRIEDMAN ^* and JOHN R. GIBSON, Senior Circuit Judges.

LOKEN, Circuit Judge.

This is a class action on behalf of eight hundred persons who retired from salaried positions at SIPCO, Inc. ("SIPCO"), on or before March 1, 1989. The Class claims that it is entitled to vested medical benefits under two Medical Benefit Plans for Salaried Pensioners adopted by SIPCO in the early 1980s. The district court ¹ agreed and ordered SIPCO and its sister company, Monfort, Inc. ("Monfort"), to provide those benefits. SIPCO and Monfort appeal. The governing law is the Employee Retirement Income Security Act, 29 U.S.C. Secs. 1001 et seq. ("ERISA"). We conclude that SIPCO intended that its retiree medical benefits would vest when salaried employees retired. We therefore affirm.

I.

In April 1981, Esmark, Inc., a holding company, spun off the fresh meat operations of Swift & Company ("Swift") to public shareholders. The new company became SIPCO. SIPCO immediately established Plan 1006, the Medical Benefit Plan for Salaried Pensioners. It covered salaried employees who retired from Swift or SIPCO after January 1, 1979 and were eligible for vested SIPCO pension benefits. SIPCO also established a Medical Benefit for Pensioners Trust to fund future retiree medical benefit payments under Plan 1006. Esmark contributed $6,200,000 to the Trust.

On January 1, 1984, due to increasing costs under Plan 1006, SIPCO created Plan 1017, which provided reduced medical benefits to salaried employees retiring after that date. Plan 1017 had a more restrictive eligibility requirement than Plan 1006--twenty years service with Swift and SIPCO, instead of ten years. Those who had retired before 1984 continued receiving full Plan 1006 benefits.

In early 1986, SIPCO was acquired by an investment firm, CHS Holding II, Inc. In the merger agreement, CHS agreed to continue SIPCO's medical benefits plans for salaried pensioners for three years after the closing "on the same basis as presently in effect." In 1987, ConAgra, Inc., which owned Monfort, purchased a fifty percent interest in SIPCO. Monfort began administering SIPCO's pension plans and retiree medical plans in 1987. ConAgra acquired complete ownership of SIPCO in August 1988 and consolidated the two meat packing organizations under Monfort's management.

In an August 10, 1988 memorandum to management employees, the President of Monfort advised: "We will abolish the Sipco retiree health care plan for those who have not retired prior to February 27 [later extended to March 1], 1989." In January 1989, SIPCO retirees received new Summary Plan Descriptions ("SPDs") ² for Plans 1006 and 1017, which included an unsettling new disclosure:

Keep in mind that the plan and trust documents are the controlling legal documents and you should rely solely on these provisions of the plan and the trust documents.

SIPCO, Inc. reserves the right to terminate, discontinue, alter, modify, or change this plan or any provision of this plan at any time.

In April 1989, after the March 1 deadline for retiring with medical benefits, eligible retirees received an SPD for a new plan, Plan 1018, covering salaried employees who retired between January 1 and March 1, 1989. This SPD disclosed benefits changes from Plan 1017 and included the statement, "employer reserves the right to charge the employee/retiree a premium for this coverage...."

A number of retirees protested these changes in the SPDs. When SIPCO did not respond, four retirees commenced this action against SIPCO and Monfort on behalf of the Class, seeking an injunction requiring defendants to provide the retiree medical benefits detailed in Plan 1006 and Plan 1017 "for life." In the district court (and on appeal), SIPCO defended on the ground that each formal Plan document includes an unambiguous reservation of the right to unilaterally amend or terminate retiree medical benefits. For example, Plan 1006 provides:

ARTICLE XVI

POWER OF AMENDMENT

1. The Board of Directors of the Company shall have the right and power to alter, amend, or annul any of the provisions of this Pensioner Medical Plan, provided, however, that no such alteration, amendment or annulment shall permit any part of the Trust Fund, either corpus or income, to be used for or to be diverted to purposes other than for the exclusive benefit of the 2. An amendment shall become effective as of the date specified in the resolution adopting such amendment. Unless otherwise expressly provided therein, amendments shall not be applicable to persons who are receiving pensions hereunder prior to the effective date of such amendment.

Employees or Participants or their beneficiaries.

Plan 1017 contains nearly identical language, and the Medical Benefit for Pensioners Trust contains provisions explicitly recognizing that the Plans it was created to fund may be modified or even terminated. Given these express Plan provisions, SIPCO argues, the Class has no right to vested retiree medical benefits.

Plaintiffs argue that the reservation-of-rights provisions in the Plans may not be given effect because the SPDs provided to employees and retirees prior to 1989 did not disclose that SIPCO may amend or terminate retiree medical benefits. The SPD for Plan 1017, for example, disclosed only the following regarding benefits termination:

TERMINATION OF COVERAGE

Children Who Marry or Reach Age 19--

All coverage for children ceases on date of marriage or age 19, whichever occurs first.

Divorce of Spouse--

All coverage for the spouse ceases on the date of divorce.

Death of Pensioner--

Coverage for dependents continues for a period of 90 days following date of death and then ceases unless the spouse is to receive a survivors pension.

After a three day bench trial, the district court entered judgment in favor of the Class. It held (i) "that it was SIPCO's intention at pertinent times to provide each of plaintiffs' class members with lifetime benefits"; (ii) that SIPCO's failure to disclose its contrary reservation of rights in the pre-1989 SPDs was a material misrepresentation that equitably estops SIPCO from later exercising those rights; and (iii) that this failure to disclose was also a breach of defendants' fiduciary duties under ERISA. The court ordered that Class members who retired before 1984 receive the lifetime medical benefits described in the initial SPD for Plan 1006, and Class members who retired between January 1, 1984, and March 1, 1989, receive the lifetime benefits described in the initial SPD for Plan 1017 (thus invalidating Plan 1018). SIPCO and Monfort appeal.

II.

The core issue in this case is whether, when each Class member retired, his or her SIPCO retirement medical benefits were vested. ERISA requires that employee pension plans meet minimum vesting standards. See 29 U.S.C. Sec. 1053. But vesting is not mandatory for "employee welfare benefit plans"--plans that offer benefits such as the medical benefits here at issue. See 29 U.S.C. Secs. 1002(1), 1051(1). Therefore, an employer may unilaterally modify or terminate medical benefits at any time "absent the employer's contractual agreement to the contrary." Howe v. Varity Corp., 896 F.2d 1107, 1109 (8th Cir.1990); see also Meester v. IASD Health Servs. Corp., 963 F.2d 194, 197 (8th Cir.1992). Thus, the question is whether Plan 1006 and Plan 1017 conferred vested benefits on class members who retired under those Plans. Plaintiffs have the burden of proof on that issue. See Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1516-17 (8th Cir.1988), cert. denied, 489 U.S. 1051, 109 S.Ct. 1310, 103 L.Ed.2d 579 (1989).

Because employee benefit plans must be established by a "written instrument," 29 U.S.C. Sec. 1102(a)(1), any SIPCO promise to provide vested benefits must be "incorporated, in some fashion, into the formal written ERISA plan." United Paperworkers Int'l Union v. Jefferson Smurfit Corp., 961 F.2d 1384, 1386 (8th Cir.1992). Therefore, our inquiry must begin with the written plan documents. SPDs are considered part of the ERISA plan documents. See Alday v. Container Corp. of America, 906 F.2d 660, 665 (11th Cir.1990), cert. denied, 498 U.S. 1026, 111 S.Ct. 675, 112 L.Ed.2d 668 (1991); Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir.1988).

When interpreting ERISA plan documents, the Supreme Court has referred us to, and explicated, the law of trusts:

The terms of trusts created by written instruments are "determined by the provisions of the instrument as interpreted in light of all the circumstances and such other evidence of the intention of the settlor with respect to the trust as is not inadmissible."

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 112, 109 S.Ct. 948, 955, 103 L.Ed.2d 80 (1989), quoting Restatement (Second) of Trusts Sec. 4 cmt. d (1959). The question of what "other evidence" is admissible turns on the relative ambiguity of the plan provision being construed:

That intent [of the settlor] is first sought by careful examination of the trust clause in question, giving the words in that clause their ordinary meanings. If the construction question cannot be resolved by reference to the clause alone, the court will examine the entire trust instrument to determine the creator's intent and purposes.... The third step becomes...