Pabst Brewing Co., Inc. v. Corrao

• Citation: 161 F.3d 434
• Decision Date: 13 November 1998
• Docket Number: No. 97-4208,97-4208
• Parties: 22 Employee Benefits Cas. 1961 PABST BREWING COMPANY, INC., Plaintiff-Appellee, v. Jack S. CORRAO, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 434

161 F.3d 434

22 Employee Benefits Cas. 1961

PABST BREWING COMPANY, INC., Plaintiff-Appellee, v. Jack S. CORRAO, Defendant-Appellant.

No. 97-4208.

United States Court of Appeals,

Seventh Circuit.

Argued Sept. 9, 1998.

Decided Nov. 13, 1998.

William M. Bitting, Dean E. Dennis (argued), Hill, Farrer & Burrill, Los Angeles, CA, for Plaintiff-Appellee.

William A. Wertheimer, Jr. (argued), Southfield, MI, for Defendant-Appellant.

Michael Schloss (argued), Department of Labor, Office of Solicitor, Washington, DC, for Amicus Curiae.

Before POSNER, Chief Judge, and RIPPLE and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

There was a time when the beer industry in Milwaukee was king, and Pabst Brewing Company was an important member of the royal court. At least with respect to Pabst's role in Milwaukee, those days are over. In its struggle to survive, Pabst looked around for ways to save money and hit upon the level of welfare benefits it was paying to its retired employees as a potential place for cuts. When it terminated certain employee benefits for retirees, however, it took the precautionary step of filing a declaratory judgment action under the Employment Retirement Income Security Act, better known as ERISA, seeking a clean bill of health for its own actions. Its complaint purported to sue a defendant class, and it named Jack S. Corrao as the representative of that class. Corrao eventually counterclaimed for the lost welfare benefits, again supposedly both individually and on behalf of the class. The district court dismissed Pabst's claim for lack of subject matter jurisdiction, but the victory was a Pyrrhic one for Corrao, because the court also dismissed Corrao's counterclaim under Fed.R.Civ.P. 12(b)(6)--ironically thereby giving Pabst everything it had hoped to secure in the original action. See Pabst Brewing Co. v. Corrao, 176 F.R.D. 552 (E.D.Wisc.1997). Corrao has appealed; unsurprisingly, Pabst took no cross-appeal from the dismissal of its declaratory judgment action.

I

For literally more than a century, the Brewery Workers union ("the union") has represented the production and maintenance employees at Pabst's Milwaukee plant. In 1953, the union succeeded in having health and life insurance benefits for employees, and pensions for retirees, included in the governing multiple employer collective bargaining agreement (CBA). Over the years, succeeding CBAs included more and better welfare benefits for active employees and retirees alike. Typically, the language of the agreements said nothing about the intended duration of the benefits. For example, Article VII of the 1955 CBA said only "For employees in retired status under the Pension Plan as of June 1, 1955 and who shall retire thereafter, a Death Benefit in the amount of $1,000." Other than the various improvements that entered the CBA from time to time, its basic structure remained unchanged until 1983, when the last multiple employer contract between the union and the companies expired.

In 1984, in addition to the switch to an individual contract between Pabst and the union, the structure of the health insurance clause changed significantly. The final contract addressed this subject in Article VII, which read as follows:

For the term of this Agreement, the Employer, at its sole cost and expense, shall provide major medical, health, dental, sickness and accident, and life insurance benefits in accordance with an[d] as summarized in Appendix A attached. It is understood that the benefits set forth may be provided by specifically referred to plans or equivalent benefits will be provided under different plans including self insurance by the Employer, and further that the actual insurance policies, documents or plans shall control over the summary set forth in Appendix A in the event of conflicting provisions.

Other provisions of the 1984 agreement and subsequent ones did not include the preliminary phrase "[f]or the term of this Agreement." For example, Appendix A, p 4(a)(1) ("the spousal benefit clause"), states that "[h]ealth insurance for covered dependents of an active employee who dies shall continue for six (6) months following the month in which the death occurs." Another provision in Appendix A, p 4(b)(3) ("the disability benefit clause"), indicates that "[t]hose retirees on Total and Permanent disability retirement currently not covered by Major Medical will be covered until they reach age 65." The latter language appears in a section of Appendix A dedicated to "retired employees and dependents." That part of the Appendix also states that "[e]mployees in retired status and their dependent spouse who are enrolled in government Medicare Plans A and B shall be provided Blue Cross and Blue Shield Medicare Extended coverage."

Although the 1984 agreement and its successors did not contain a clause labeled "Integration Clause," Article XXV, entitled "Severability," had language touching on the question of integration. In pertinent part, Article XXV said:

It is the intent and purpose of the parties that this agreement be in full and complete compliance with all applicable state and federal laws, rules and regulations, and that it covers the entire agreement of the parties.

(Emphasis added.) The remainder of the Article promised that no other subjects would be opened for bargaining during the term of the agreement and addressed the severability issue.

From the time the 1984 contract went into effect until the expiration of the last agreement in 1996, Pabst never formally cut back on retiree benefits (though it did change delivery mechanisms more than once). Indeed, during a period of time in 1990 when there was no agreement in force and the employees were striking, Pabst continued to provide benefits to retirees. It did so again in 1993 and 1995 when the agreements expired without successor agreements in place. On the other hand, each agreement in turn after 1984 had language addressing the term of the agreement. Article XXIX of the 1993-1996 CBA, which is the one directly pertinent to the present case, read as follows:

This Agreement cancels and takes the place of all previous contracts and agreements and shall continue in force and effect from June 1, 1993 until June 1, 1996 and shall continue in full force and effect from year to year after June 1, 1996 by automatically renewing itself unless at least sixty (60) days prior to June 1, 1996 or any anniversary date thereafter either party gives written notice to the other of its desire to terminate or modify this Agreement.

During the term of each succeeding agreement, Pabst conferred on the retirees the benefits provided by the agreement then in force. In other words, if a worker had retired in 1986, Pabst did not freeze the welfare benefits that the 1986 agreement had provided and give only them. Instead, it changed retiree benefits along with benefits to active workers. In 1988, for example, the retirees were placed on a managed healthcare plan known as the Advantage Program. In 1990, the company implemented a Preferred Provider Organization (PPO) for them. The retirees accepted these changes as they occurred.

Perhaps they acquiesced because not a single one thought that any of those changes were adverse, perhaps they did so because the changes did not seem significant enough to warrant protest--we do not know, and the record casts no light on the answer to that question. What is clear is that Pabst's declining fortunes brought a much more drastic change in 1996. In that year, its Milwaukee division expected to lose about $8.6 million. Retiree benefits cost the company approximately $3.5 million per year, according to Pabst. When the 1993-1996 CBA expired, Pabst notified its retired workers that it would discontinue the death benefit as of August 1, 1996, and that it would discontinue health benefits as of September 1, 1996. Later, at the end of 1996, Pabst shuttered its Milwaukee brewery altogether.

This news came as a tremendous shock for the retirees, who had been under the impression that their retirement benefits were secure. This litigation followed, and as noted above, they were unsuccessful in the district court. Because the procedural posture of the case at this point is more complicated than meets the eye, we now clarify exactly who is suing over what as the case reaches us.

II

Unlike the usual ERISA case in which a group of employees (past or present) is suing for benefits under a welfare plan, in this case Pabst itself initiated the litigation. It filed what it styled a "class action complaint" for a declaratory judgment on August 12, 1996, naming Corrao individually and as the representative of a "subclass" of some 774 Pabst retirees who were represented by the union during the time of their employment. It also named James P. Murdock as a representative of another subclass of 43 Pabst employees who had not been represented by the union. Although it may be stating the obvious, Pabst was the plaintiff in this declaratory judgment action, which means that the two classes were being sued as defendant classes. Pabst wanted a declaratory judgment that its "termination of eligibility and elimination of benefits to the Class Retirees under the Plans is not violative of [ERISA] and is otherwise lawful in all respects."

Corrao answered the complaint on August 27, 1996, and filed a counterclaim, again on behalf of himself and the entire class of retirees that Pabst had described. In the counterclaim, which he based on both § 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185(a), and ERISA § 502, 29 U.S.C. § 1132(e), he claimed that the CBAs between the union and Pabst gave the retirees lifetime rights to health insurance and life insurance benefits. He further asserted that these benefits, because they were vested lifetime benefits, survived the expiration on May 31, 1996, of the 1993-1996 CBA, and he sought to enforce the agreements...