Tourangeau v. Uniroyal, Inc., s. 1807

• Decision Date: 03 December 1996
• Docket Number: Nos. 1807,2086 and 2102,D,s. 1807
• Citation: 101 F.3d 300
• Parties: Joseph TOURANGEAU, Molly Cobbol, Robert Lowell and Robert Frank, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees-Cross-Appellants, v. UNIROYAL, INC., Defendant-Appellee, Joseph F. Flannery, individually and as Chief Executive Officer and Director of Uniroyal, Inc.; William J. Palmer, Thomas W. Clark, Norma R. Sullivan, Alan R. Elton, Ronald H. Hawkins and Frank J. Longto, individually and as members of the Uniroyal Board of Benefits and Awards, Defendants, Michelin North America, Inc. (formerly Uniroyal Goodrich Tire Company, Inc.) Respondent-Appellant-Cross-Appellee. ockets 96-7103, 96-7149 and 96-7483.
• Court: U.S. Court of Appeals — Second Circuit

Page 300

101 F.3d 300

Joseph TOURANGEAU, Molly Cobbol, Robert Lowell and Robert Frank, on behalf of themselves and all others similarly situated Plaintiffs-Appellees-Cross-Appellants, v. UNIROYAL, INC., Defendant-Appellee Joseph F. Flannery, individually and as Chief Executive Officer and Director of Uniroyal, Inc.; William J. Palmer Thomas W. Clark, Norma R. Sullivan, Alan R. Elton, Ronald H Hawkins and Frank J. Longto, individually and as members of the Uniroyal Board of Benefits and Awards, Defendants, Michelin North America, Inc. (formerly Uniroyal Goodrich Tire Company, Inc.) Respondent-Appellant-Cross-Appellee.

Nos. 1807, 2086 and 2102, Dockets 96-7103, 96-7149 and 96-7483.

United States Court of Appeals, Second Circuit.

Argued June 28, 1996.

Decided Dec. 3, 1996.

Wayne C. Dabb, Jr., Cleveland, OH (John J. McGowan, Jr., Baker & Hostetler, Cleveland, OH, Frank J. Silvestri, Jr., Beverly Stauffer Knapp, Zeldes, Needle & Cooper, Bridgeport, CT, of counsel), for Respondent-Appellant-Cross-Appellee.

Daniel M. Abuhoff, New York City (John H. Hall, Debevoise & Plimpton, New York City, of counsel), for Defendant-Appellee Uniroyal, Inc.

Seth M. Kupferberg, New York City (I. Philip Sipser, Sipser, Weinstock, Harper & Dorn, New York City, of counsel), for Plaintiffs-Appellees-Cross-Appellants.

Before: MINER, JACOBS and PARKER, Circuit Judges.

PARKER, Circuit Judge:

This case presents three main issues: (1) whether, under the unusual circumstances presented, a successor in interest to a litigating party is bound by the terms of an agreement which settled that litigation even though the successor was not a formal participant in the litigation; (2) if the settlement agreement does bind the successor in interest, whether, absent a showing of plaintiff-specific cost increases, the agreement forbids the successor from increasing the rates plaintiffs, a class of retirees, must pay to receive certain retirement benefits; and (3) whether the settlement agreement provides for awarding fees to plaintiffs' counsel for their efforts to enforce the settlement agreement in this action. The United States District Court for the District of Connecticut (Alan H. Nevas, Judge ) answered the first two questions "yes" and the third question "no." We affirm as to the first question, reverse as to the second and third questions, and remand.

I. BACKGROUND

A. Overview

Before discussing the facts in chronological detail, a brief overview is in order. In the mid 1980s, Uniroyal, Inc. (hereafter "Uniroyal") restructured in order to combat the threat of a hostile takeover and to facilitate a friendly takeover of the company. As part of the restructuring, Uniroyal created and incorporated five wholly owned subsidiaries. These subsidiaries were a holding company and four operating companies that corresponded with Uniroyal's various businesses which had previously operated as unincorporated divisions of Uniroyal. One such subsidiary, Uniroyal Tire Company (hereafter "Tire"), assumed operation of Uniroyal's tire business in 1985. About a year later, Uniroyal transferred Tire to a partnership owned in part by Uniroyal and in part by another company, Goodrich. The name of the partnership was Uniroyal-Goodrich Tire Company (hereafter "UGTC"). ¹

Aware of the changes going on at their former employer, a class of Uniroyal retirees brought suit against Uniroyal in the United States District Court for the District of Connecticut seeking a declaratory judgment (1) that their retirement welfare benefits (i.e., medical and life insurance) could not be terminated or reduced without their consent, and/or (2) that federal law required Uniroyal to establish a separate fund to cover the The litigation described in the above paragraph will hereafter be referred to as the "underlying litigation." The controversy before us now stems from an action to enforce the settlement agreement which was the outcome of the underlying litigation.

expenses of providing such benefits. Only Uniroyal was named as a defendant. This litigation was ultimately settled in a settlement agreement and approved by the court in a consent judgment.

Both prior to and during the pendency of the underlying litigation, Tire assumed many of Uniroyal's commitments and liabilities, including those relating to the retirement benefits of Uniroyal retirees assigned to Tire (hereafter "Tire retirees") (generally persons whose employment related to the business operations which Tire assumed).

B. Chronology

The following chronology details the parallel paths of corporate restructuring and litigation which gave rise to this action seeking to enforce the settlement agreement.

On October 27, 1985, Uniroyal spun off its tire business into Uniroyal Tire, a separately incorporated subsidiary of another just-created spin-off, Uniroyal Holding Co., which was created solely to own stock of Tire. Tire and Uniroyal executed an Assumption of Liabilities and Indemnification Agreement (hereafter "Assumption Agreement"), which said that Tire assumes:

the obligations and liabilities of UNIROYAL, Inc., ... existing as of October 27, 1985 and at any time thereafter, of every kind and description relating to (i ) the business conducted by Uniroyal within the Tire and Related Products Segment ... whether accrued, absolute or contingent, or whether in existence on the date hereof or arising hereafter....

Tire specifically assumed liabilities "which may arise under any ... pension, postretirement, health, accident, disability and survivor benefit plans or programs." Tire also agreed to indemnify Uniroyal "from and against any and all losses, liabilities, claims, damages, costs and expenses ... arising out of or related, or purporting to be related, in any manner to the obligations and liabilities hereby assumed by Tire."

The Assumption Agreement also explained that if Uniroyal is sued in a way that implicates both matters for which Tire will indemnify and matters for which Tire will not indemnify, then Uniroyal can conduct the defense of that action, and settle it in good faith. ² Specifically, the Assumption Agreement said that Uniroyal "shall be entitled ... to undertake, conduct and control ... the settlement or defense of such action or claim."

On June 19, 1986, plaintiffs, a class of retired Uniroyal employees, started the underlying litigation by filing suit under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (hereafter "ERISA"), against Uniroyal in response to Uniroyal's liquidation. The complaint also alleged state law counts of breach of contract and breach of fiduciary duty. Plaintiffs sued to maintain lifetime medical and other benefits. The Tire subsidiary was not joined as a defendant in the underlying litigation.

On July 31, 1986, Tire and Uniroyal restated the assumptions contained in the October 1985 Assumption Agreement in a "Rescission and Restatement Agreement."

On August 1, 1986, Tire entered into a joint venture, becoming a partner in the UGTC partnership. The "Joint Venture Agreement" created a partnership that "assume[d] all liabilities of Uniroyal relating to the Uniroyal Tire Business and ... indemnif[ied] Uniroyal with respect to the liabilities assumed by the Partnership ... as set forth ... in the Uniroyal Assumption Documents."

The Assumption Documents delivered pursuant to the above-quoted language stated that UGTC agreed to

pay, perform and discharge ... all obligations and liabilities associated with ... any past employees of Uniroyal ... who were, at the time of their retirement or Elsewhere in the Assumption Documents the new partners agreed that

termination, employed in connection with the Uniroyal Tire Business ... including without limitation those obligations and liabilities which may arise ... under any pension, postretirement, health, accident, disability and survivor benefit plans or programs, whether or not such plans or programs have been terminated, and all other employment-related claims of Uniroyal.

NOTWITHSTANDING ANY OTHER PROVISION OF THIS ASSUMPTION OF LIABILITIES AND INDEMNIFICATION AGREEMENT, this ... Agreement is not intended to expand the scope of any liabilities assumed hereunder or to create any Partnership liabilities that Uniroyal or the Parent did not previously have, and the Partnership does not intend hereby to undertake any liability or obligation of any Person other than Uniroyal.

The Uniroyal disclosure schedule which Tire submitted as part of the Joint Venture Agreement contained a paragraph describing the underlying litigation which, while noting that "none of Uniroyal's subsidiaries is a defendant in the action," concluded "[i]t is impossible to determine at this point what, if any, relief the court might order in this action." Furthermore, the disclosure schedule also said that the pending litigation was "likely ... to affect materially and adversely the Uniroyal Tire Business as conducted as of the date of the Joint Venture Agreement."

On November 14, 1986, the UGTC director of employee benefits was deposed. She testified that UGTC "had assumed the responsibility for benefits for retired employees from Uniroyal's Tire division."

On December 1, 1986, plaintiffs and Uniroyal signed a "Settlement Agreement" to end the underlying litigation. The Agreement provided as follows, at paragraph sixteen:

VESTING OF WELFARE BENEFITS

16. (a) Uniroyal agrees to pay benefits to Eligible Retirees at the level provided for on the date the Action was commenced, under the Benefit Plans consisting of (i) the Comprehensive Medical Plan, (ii) the Prescription Drug Plan and (iii) the life insurance plan, each as described in the summary booklets attached hereto as Exhibits 1A to 1F and agrees that neither it nor its successors, assigns or indemnitors shall terminate or materially reduce the level of benefits provided under the terms or conditions of the Plans.

The summary booklet corresponding to the Comprehensive Medical...