Temme v. Bemis Co., Inc.

In the

United States Court of Appeals

For the Seventh Circuit

No. 09-3374

T HOMAS T EMME, individually and

as representative of a class of persons

similarly situated, et al.,

Plaintiffs-Appellants,

v.

B EMIS C OMPANY, INC.,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 2:08-CV-00090—J.P. Stadtmueller, Judge.

A RGUED F EBRUARY 22, 2010—D ECIDED S EPTEMBER 13, 2010

Before K ANNE and W ILLIAMS, Circuit Judges, and

S PRINGMANN, District Judge. Œ

W ILLIAMS, Circuit Judge. For over twenty years, a

small group of 62 retirees, former plant maintenance

workers and their spouses, have been receiving their

Œ

Hon. Theresa L. Springmann, United States District Judge

for the Northern District of Indiana, sitting by designation.

2 No. 09-3374

health care coverage through Hayssen Manufacturing

Company (“Hayssen”) and its successor, Bemis Com-

pany, Inc. (“Bemis”) as a result of a 1985 Plant Closing

Agreement. In 2005, Bemis changed the insurance

provider of its medical plan and made changes to deduct-

ible and co-pay amounts related to medical care and

prescription drugs. In 2007, Bemis also informed the

retirees that it would no longer provide a prescription

drug benefit. The retirees then sued under the Labor-

Management Relations Act, 29 U.S.C. § 185(a), and the

Employee Retirement Income Security Act (“ERISA”), 29

U.S.C. § 1132, alleging that the 2005 and 2007 changes

breached the agreement negotiated by an employer and

a labor organization. The district court held that the

Plant Closing Agreement included no promise of lifetime

benefits to the retirees and granted summary judgment

to Bemis. However, we find that the parties’ agreement

was to provide lifetime benefits to retirees and remand

the case to the district court for further proceedings on

the question of whether Bemis breached its agreement

by making the changes to the retirees’ medical benefits.

I. BACKGROUND

Since Bemis prevailed on summary judgment, we

recount the facts in the light most favorable to the class

represented by Thomas Temme, the party against

whom the motion under consideration was decided.

Bassiouni v. F.B.I., 436 F.3d 712, 721 (7th Cir. 2006). Hayssen

and the United Automobile Aerospace and Agricultural

Implement Workers of America and its Local No. 1423

No. 09-3374 3

Union (“the Union”) were parties to a series of collec-

tive bargaining agreements covering the production

and maintenance workers at the Hayssen facility in

Sheboygan, Wisconsin. The last collective bargaining

agreement negotiated between the parties was an agree-

ment covering the period from 1982 to 1985. When

this 1985 Collective Bargaining Agreement (“CBA”)

expired on June 30, 1985, a strike ensued. The strike

continued through the summer, and Hayssen eventually

decided to close its Sheboygan plant and relocate

its manufacturing operations.

In connection with this plant relocation, the parties

negotiated a Plant Closing Agreement (“Closing Agree-

ment”) with the goal of “embodying the full and

complete terms and conditions regarding the effects of

the termination of [Hayssen]’s manufacturing opera-

tions and the termination of employment for all em-

ployees represented by the Union.” The first three para-

graphs of the Closing Agreement terminated the em-

ployment relationship between union employees who

retained seniority under the CBA and Hayssen, termi-

nated the strike, and terminated the bargaining relation-

ship between Hayssen and the union. Paragraph 4 con-

cerned the termination of benefits. Paragraph 4(a)

modified the pension plan and provided for a “vested”

termination of the plan. Paragraph 4(b) referred to the

CBA and listed the fully satisfied obligations and claims

under the CBA. Paragraph 4(c) explained the calcula-

tion of severance pay and the necessity of executing

a release as a condition for receiving the severance pay.

Paragraph 5 contained a general statement releasing the

4 No. 09-3374

company from claims arising under the CBA and an

agreement that no requests would be made to Hayssen for

any benefits beyond that provided by the Closing Agree-

ment. Finally, Paragraph 6 stated that the Closing Agree-

ment is the full and complete agreement between the

parties, superseding and voiding any prior agreements

such as the CBA “except and only to the extent that

reference to the same may be necessary to effectuate the

provisions of this agreement.”

One provision in Paragraph 4 concerned medical bene-

fits. Because its meaning is the focus of the litigation

between the parties, we recite the language of para-

graph 4(d) in full:

(d) Health/Medical Benefits—Employees termi-

nated under the provisions of this agreement with

the exception of those eligible employees who

apply for retirement benefits by 12/31/85, will be

allowed to continue their present Blue Cross/

Blue Shield Medical coverage by paying the full

monthly premium for a period of 12 months (1/1/86

to 1/1/87) or until they become covered by another

medical insurance plan, whichever is sooner. If

such an employee is covered as a dependent

under another medical insurance plan, the Blue

Cross/Blue Shield plan would be the secondary

payer. If an individual becomes covered under

another plan within the 12 month period, his/her

eligibility under the Blue Cross/Blue Shield plan

will cease immediately and there will be no co-

ordination of benefits.

No. 09-3374 5

The premium rates for such coverage are cur-

rently $72.50 per month for single coverage and

$178.14 per month for family coverage. These

premium rates have been historically reevaluated

by Blue Cross/Blue Shield on July 1 of each year.

Employees who elect to continue their Blue

Cross/Blue Shield coverage will also be subject

to paying whatever the full monthly premiums

are on 7/1/86. Employees electing to continue

medical coverage as described above must

submit by mail to the Company post marked by

the 10th of each month, a check or money order—

no cash—for the full monthly premium in effect.

If an employee fails to follow any part of the

procedure in the above paragraph without excep-

tion, i.e., meeting the 10th deadline, submitting

by mail or submitting a check or money order,

such employee’s eligibility to continue medical

coverage will cease immediately.

Retired Employee Medical Benefit

Individuals who attain age 60 and have at least

six years of continuous service by 12-31-85, and

who elect to commence their retirement benefits

by 12-31-85, will be eligible for the retired em-

ployee medical benefit. Individuals who attain

age 58 or 59 by 12-31-85 and who indicate by 12-31-

85, their intent to commence retirement benefits

by age 60 will be eligible for the retired employee

medical benefit. If an employee becomes eligible

for medical insurance coverage under another

6 No. 09-3374

plan, the Blue Cross/Blue Shield plan will be-

come the secondary payer. If an individual is

covered as a dependent under another medical

insurance plan, then the Blue Cross/Blue Shield

plan would be the secondary payer.

The retirement benefit that the Closing Agreement

makes retirees eligible for is not delineated in the

Closing Agreement itself. In the CBA, however, two

provisions define the health insurance coverage. Section

9.01 of the CBA continues the “Hospital, Surgical and

Medical Insurance” to which employees are entitled

from the previous CBA, and adds some additional bene-

fits. These additional benefits, effective July 1, 1982, in-

clude “two (2) fifty dollar ($50.00) deductibles per

family per year” and “[o]ne hundred percent (100%)

coverage for physicians’ home and office calls and pre-

scription drugs after the deductibles are met.” In full,

the next section of the CBA provides:

9.02. Retired Employee Medical Benefit. The

medical benefit provided retirees, their spouses

and dependents shall be the same as defined in

Section 9.01, except that benefits are provided

under the “Medicare Carve-Out” program, sub-

ject to the terms of the master insurance contract.

In the event of the death of the retired employee,

their dependent spouse will retain coverage until

such time as they remarry or qualify for other

primary coverage.

The following conditions and terms apply

to eligibility for the Retired Employee Medical

Benefit:

No. 09-3374 7

a. The employee must be “retired” and must

meet the conditions of a Retired Employee as

defined in the Hayssen Retirement Plan and/or

Pension Agreement, whichever applies.

b. Must enroll in Medicare Plans A and B when

the employee becomes eligible.

Following the closing of its Sheboygan plant, Hayssen

provided its retirees, both those who retired before the

plant closing and those who were added to the retiree

pool by the Closing Agreement, with medical benefits

at the levels defined by the CBA. Bemis acquired

Hayssen in 1996, and continued to provide retirees

with these medical benefits. In the fall of 2004, Bemis

notified the retirees that effective January 1, 2005, the

plan would be offered under CIGNA (instead of Blue

Cross/Blue Shield) and that the deductibles would be

raised to $250 from the $50 listed in § 9.01 of the CBA.

In the fall of 2006, Bemis notified the retirees that effec-

tive January 1, 2007, the medical plan would eliminate

all prescription drug coverage.

Thomas Temme, representing the class of retirees who

received the retiree medical benefit through the Closing

Agreement, brought this class action suit alleging that

Bemis breached its agreement to provide retirees with

vested welfare benefits. The district court certified the

class, and designated Thomas Temme and his wife,

Shirley Temme, as class representatives. Both parties

moved for summary judgment, and the district court

granted summary judgment to Bemis. The plaintiffs

appeal.

8 No. 09-3374

II. ANALYSIS

A. A lifetime retiree medical benefit was the parties’

intent.

We review the district court’s grant of summary judg-

ment de novo, with the familiar standard that summary

judgment should be granted if there is no genuine

issue of material fact and the record shows that the

law entitles the moving party to judgment. Chaklos v.

Stevens, 560 F.3d 705, 710 (7th Cir. 2009).

The parties dispute whether they intended to create

a lifetime entitlement to health benefits in their agree-

ment. To resolve this contract dispute, we look to the

labor contract in question and apply federal principles

of contract construction. Cherry v. Auburn Gear, Inc., 441

F.3d 476, 481-82 (7th Cir. 2006); Bland v. Fiatallis N. Am.,

Inc., 401 F.3d 779, 783 (7th Cir. 2005); Diehl v. Twin Disc,

Inc., 102 F.3d 301, 305 (7th Cir. 1996). A contract’s meaning

is a matter of law; where there is no contractual am-

biguity, there is no need for extrinsic evidence and no

factual dispute that precludes summary judgment. Diehl,

102 F.3d at 305. When interpreting contracts, terms

are given their “ordinary and popular” meaning, GCIU

Employer Retirement Fund v. Chi. Tribune Co., 66 F.3d 862,

865 (7th Cir. 1995), the document is “read as a whole

with all its parts given effect,” and related documents

are read together. Bland, 401 F.3d at 783. The contract

language is ambiguous if there is more than one rea-

sonable interpretation of it, and only if the ambiguity

is not clarified elsewhere in the document will a court

resort to extrinsic evidence of the parties’ intent. Id. at 784.

No. 09-3374 9

Here, there are two potentially relevant documents

that make up the agreement between the parties: the

Closing Agreement and the last collective bargaining

agreement negotiated between the parties. Because of

this, we must consider, in addition to general contract

principles, whether a right to lifetime health benefits is

granted to retired workers by a terminated collective

bargaining agreement. See Rossetto v. Pabst Brewing Co.,

Inc., 217 F.3d 539, 541 (7th Cir. 2000) (listing cases con-

sidering the question of “when a right to health

benefits that is granted to retired workers by a collec-

tive bargaining agreement . . . survives the termination

of the agreement.”). Under ERISA, employee benefit

plans are classified as either welfare benefit plans or as

pension plans. 29 U.S.C. §§ 1002(1), 1002(2)(A). Pen-

sion plans, which provide benefits to employees upon

retirement or termination, are subject to strict vesting

requirements. 29 U.S.C. § 1051. In comparison, welfare

benefits such as health care coverage only vest in a

lifetime entitlement if the plan contract specifically pro-

vides for it. 29 U.S.C. § 1051(1); see also Bland, 401 F.3d

at 783; Diehl, 102 F.3d at 305. Because employers are not

legally required to vest welfare benefits, and because

vested benefits are forever unchangeable, there is a pre-

sumption against vesting if the plan language is silent.

Bidlack v. Wheelabrator Corp., 993 F.2d 603, 606-07 (7th Cir.

1993) (en banc). But, this is a default rule that exists only

if the contract is silent, and it disappears in the face of

objective evidence or ambiguity in the parties’ intent.

Bland, 401 F.3d at 784; Rossetto, 217 F.3d at 544 (“If there

is some positive indication of ambiguity, something to

10 No. 09-3374

make you scratch your head . . . the presumption falls

out.”).

As an initial argument, Bemis takes the position that

the Closing Agreement is the contract in full, and

the only document to analyze. This document, Bemis

argues, is unambiguous and so there is no need to look

to anything contained in the extrinsic CBA. Paragraph

4(d) of the Closing Agreement provides that retirees

and soon-to-be retirees are “eligible for the retired em-

ployee medical benefit.” Nowhere in the Closing Agree-

ment is there a definition or explanation of this “retired

employee medical benefit.” In Bemis’s reading then,

the language in the closing agreement promises no

benefit, let alone a lifetime benefit; it only states that

certain people are “eligible” for an undefined benefit. We

must remember, however, that all related documents

are read together, Bland, 401 F.3d at 783, and the closing

agreement references the CBA at multiple places.

First, Paragraph 4(b) refers to the CBA when listing

satisfied obligations, and the section defining the retired

employee medical benefit is notably not on this list.1

1

Paragraph 2 of the closing agreement states:

Other Benefits. As of the date of this agreement, the

Company has fully satisfied its obligations and all

claims under the [CBA] for the following benefits:

Health and Accident Insurance—Section 9.03

Dental Insurance—Section 9.04

Vision Care—Section 9.10

Survivor Income/Transition Benefits—Section 9.06

(continued...)

No. 09-3374 11

Furthermore, the Closing Agreement states it shall be the

full and complete agreement and supersede the “labor

Contract, pension and insurance agreements, except and

only to the extent that reference to the same may be necessary

to effectuate the provisions of this agreement.” Plant Closing

Agreement ¶ 6 (emphasis added). These references

show an intent for the CBA and Closing Agreement to be

read together. Contrary to Bemis’s argument, the CBA

is not extrinsic evidence, but a necessary document in

gaining a complete understanding of the agreement

between Bemis and the retirees. Only by reading the

CBA can meaning be given to the “retired employee

medical benefit” for which retirees are eligible.

Reading the Closing Agreement in conjunction with

the CBA clarifies the ambiguity caused by reading the

Closing Agreement on its own. The common sense

reading of the two documents is that the “retired em-

ployee medical benefit” referred to in the Closing Agree-

ment is defined by the CBA’s “Retired Employee

Medical Benefit” provision. Section 9.02, the Retired

Employee Medical Benefit, describes the level of cov-

erage by stating that the “medical benefit provided

1

(...continued)

These benefits ceased on July 1, 1985, and the Company

has no further obligation for claims against it.

Section 9.03, Health and Accident Insurance, is not in the record,

but it refers to a different benefit than the sections contested

here, § 9.01, Hospital, Surgical and Medical Insurance, and

§ 9.02, Retired Employee Medical Benefit.

12 No. 09-3374

retirees, their spouse and dependents shall be the same”

as defined in § 9.01, which describes the Hospital,

Surgical and Medical Insurance provided to current

employees. Bemis argues that this is not enough to

create a lifetime benefit. Neither the Closing Agreement

nor the CBA use duration terms such as “lifetime” or

“vest” when discussing medical benefits, and Bemis

argues the parties knew how to vest benefits as it

used the word “vested” in relation to pension benefits.

However, the lack of an explicit vesting term is not deter-

minative. We have previously rejected the position that

“magic words” or unequivocal contract language must

state that lifetime benefits were being created. Bidlack, 993

F.2d at 607; see also Bland, 401 F.3d at 784. And, we have

on multiple occasions noted that before the rising cost

of health benefits in the 1980s, little attention may

have been given to language affecting a possible future

change in benefits. Bland, 401 F.3d at 783 (citing Bidlack,

993 F.2d at 613 (Cudahy, J., concurring)).

Moreover, there are straightforward indications of

the parties’ intent to create lifetime benefits. In Zielinski v.

Pabst Brewing Company, we observed that a presumption

against vesting is a natural fit with collective bargaining

agreements because they are short-term agreements,

and not presumed to create rights that continue past

their termination date. 463 F.3d 615, 617-18 (7th Cir.

2006). We compared that with a shutdown agreement,

and found that applying the presumption in the context

of a long-term contract without an end date was less

persuasive. Id. at 618. The contract here differs from a

typical collective bargaining agreement in the same

way: the parties were aware they were establishing and

No. 09-3374 13

settling claims for employees in a permanent and en-

during fashion.

That the parties were permanently settling claims in

the Closing Agreement seems particularly true when

comparing the clauses dedicated to medical benefits for

terminated employees and retired employees. In dis-

cussing the health and medical benefits granted to em-

ployees terminated by the Closing Agreement, it states

that employees can “continue their present Blue Cross/

Blue Shield Medical coverage by paying the full monthly

premium for a period of 12 months (1/1/86 to 1/1/87) or

until they become covered by another medical insurance

plan, whichever is sooner.” It contains an ending date,

and also provides for several circumstances in which the

eligibility will “cease immediately” such as not paying

premiums or being covered under another plan. The

Closing Agreement also explicitly applies this time-

limited benefit to all employees, “with the exception of

those eligible employees who apply for retirement

benefits by 12/31/85.”

In stark contrast, the description of the retiree benefit

contains no ending date, and it does not “cease immedi-

ately” upon qualification for another plan. Instead, the

company plan becomes a “secondary payer.” Moreover,

the corresponding CBA provision provides that “in the

event of the death of a retired employee,” the “dependent

spouse will retain coverage until such time as they

remarry or qualify for other primary coverage,” strongly

implying that retired employees (and their spouses) are

covered until death. See Rossetto, 217 F.3d at 545

14 No. 09-3374

(“[A]n employer might want to specify a time limit short

of death for dependent benefits yet feel no similar need

to limit the duration of retirees’ benefits.”).

Bemis also argues that the plaintiffs have signed re-

leases waiving all claims arising under the CBA. Upon

each employee’s termination, a document was signed

releasing all claims under the previous CBA, and Bemis

argues this includes any rights secured by § 9.02. A

better understanding of the general release is that it

relinquished any claim under the CBA that was not

separately secured by the Closing Agreement; that the

Closing Agreement secured the right to a lifetime

benefit, but that the CBA defined the scope of the right.

The release specifically lists an amount of payment re-

ceived by each signee. The payment is the “total pay

due” for payments such as severance, unused vacation

pay and holidays. It also specifically lists “premium

payments for continued medical coverage either as a

terminated employee or a future retiree.” A thorough

reading of the release undercuts Bemis’s argument. The

release acknowledges that terminated employees and

retirees will continue to receive medical coverage, but

releases Bemis from making any more premium pay-

ments for that coverage.

The language contained in the Closing Agreement

clearly entitles retirees to an eligibility for a specific

medical benefit. The retirees represented in this action

were eligible for these retiree medical benefits, and

elected to commence their retirement benefits by the

date indicated in the Closing Agreement. The benefit

No. 09-3374 15

was defined by §§ 9.01-.02 of the CBA, which promised

retirees’ benefits to the level of those given to current

employees, and specifically detailed added benefits

effective July 1, 1982. The Closing Agreement was ne-

gotiated with the purpose of creating enduring rights,

had no termination date, and no method through

which retiree benefits could end. We find that the

parties intended to grant retirees a lifetime entitlement

to medical benefits and reverse the district court’s grant

of summary judgment to Bemis on this issue.

B. The district court must determine whether Bemis

breached its agreement.

Bemis also argues that even if the parties intended to

create a lifetime retiree employee medical benefit,

Bemis is not in breach of its agreement to provide this

benefit. Bemis argues it had reserved the right to modify

or terminate benefits at any time as § 9.01 and § 9.02 state

that the benefits are subject to the terms and conditions

of an “insurance contract.” Bemis claims that the master

insurance contract to which the CBA refers has an

explicit reservation of rights stating that the employer

can modify the conditions of the plan as long as it gives

written notification to the other party, and that it gave

the required notice here. See, e.g., Bland, 401 F.3d at 786;

Vallone v. CNA Fin. Corp., 375 F.3d 623, 633 (7th Cir.

2004). In Vallone, we observed that a reservation-of-

rights clause could mean that even an unambiguous

term such as “lifetime” could mean “good for life

unless revoked or modified.” Vallone, 375 F.3d at 633.

16 No. 09-3374

If the master insurance contract contained an express

reservation of rights, it is possible that Hayssen could

have drastically modified the level of benefits provided

to its employees while the CBA controlled the terms of

the relationship between Hayssen and its employees. But,

the fact that a final closing agreement incorporated or

relied on language in a previous collective bargaining

agreement does not mean it adopted, unmodified, any

language in any underlying insurance contract. Cf. Diehl,

102 F.3d at 306-07 (“[T]he Shutdown Agreement itself

was an independent contract, supported by separate

consideration and capable of modifying or supplanting

prior contractual arrangements.”). If the parties in-

tended lifetime medical benefits for retirees, then that

promise could have abrogated any right Bemis may have

had to terminate coverage under its master insurance

contract. Moreover, as proof that this reservation of

rights clause existed, Bemis points to a 1990 insurance

contract and “deduces” that the relevant 1984 master

contract included the same reservation of rights. Haber-

man Aff. ¶¶ 4-6. The 1984 contract itself however, is not

the record. Temme disputes the existence of any such

clause in the relevant contract. Pl.’s Br. in Resp. to Def.’s

Motion for Summ. J. at 12-13. Whether the 1984 master

insurance contract included a reservation-of-rights

clause and whether the parties intended the clause—if

any exists—to be abrogated or modified by the vested

nature of the medical benefits are issues to be decided

by a factfinder.

These factual disputes do not help us answer the ques-

tion of what benefits the retirees are entitled to, and

whether Bemis breached that agreement through its

No. 09-3374 17

actions in 2005 and 2007. This is a question best resolved

by a factfinder in the first instance. See Zielinski, 463 F.3d

at 621; Diehl, 102 F.3d at 309. The plaintiffs argue that

although they understand that some benefits might have

to be modified, the specific benefits laid out in the

CBA must remain exactly the same. This would mean,

by today’s standards, an extremely generous 100% pre-

scription drug coverage and $50 per year deductibles, as

well as a perhaps low maximum “Major Medical” payout

amount of $500,000. More likely, the parties intended

that Bemis would continually provide medical coverage

to retirees at a level “substantially commensurate” with

the benefits provided under the CBA, but with some

freedom to impose cost-saving measures that did not

substantially reduce benefits. See Diehl, 102 F.3d at 310

(“[W]e see nothing to indicate that the Shutdown Agree-

ment established a right to a particular insurance carrier,

or even to a particular plan . . . . We therefore would read

the Shutdown Agreement as requiring [defendant] to

expend reasonable efforts to secure coverage at a level

substantially commensurate with the benefits provided

under the 1983 Insurance Agreement.”). The language in

the CBA and Closing Agreement also reflect this likely

intent—the CBA discusses newly added benefits effec-

tive in 1982 and states that retiree benefits are subject to

a “Medicare Carve-out” program; and the Closing Agree-

ment discusses the yearly re-evaluation of premium

prices by the medical plan. Because Temme insists on

the coverage provided for in the CBA, and Bemis

insists that no coverage is required, neither party has

explained the impact of the exact changes in the plan

18 No. 09-3374

or their significance upon the retirees’ vested rights to

insurance coverage. As we did in Diehl and Zielinski,

we remand the case to the district court for further pro-

ceedings. Our discussion in those cases should offer

significant guidance for the district court as it moves

forward in determining the precise nature of the mod-

ifications that were implemented in 2005 and 2007, and

whether the plaintiffs can meet the burden of demon-

strating that the changes brought their benefits below a

level reasonably commensurate with the coverage they

had enjoyed for the period of time between 1985 and

2005. Zielinski, 463 F.3d at 619-21; Diehl, 102 F.3d at 310-11.

III. CONCLUSION

The language in the Closing Agreement regarding the

eligibility of the retirees to a medical benefit, read in

conjunction with the CBA, shows the parties intended

for the retirees to enjoy a lifetime entitlement to medical

benefits. Additional determinations need to be made

with respect to the level of entitled benefits and whether

Bemis’s 2005 and 2007 changes infringed on the retirees’

vested rights. We R EVERSE the grant of summary judg-

ment to Bemis, and R EMAND this case for further pro-

ceedings consistent with this opinion.

9-13-10