Court Upholds Injunction on Health Benefit Changes

January 15, 2014 (PLANSPONSOR.com) – The 6th U.S. Circuit Court of Appeals upheld a district court’s decision to enjoin a distressed city from enacting changes to public retiree health benefits.

The case, Welch, et al. v. Brown, et al. (no. 13-1476), came to the 6th Circuit on appeal from the U.S. District Court for the Eastern District of Michigan and involves health benefits for retired employees of the distressed city of Flint.

In short, the circuit court approved the district court’s decision to grant a motion for preliminary injunctive relief as filed by retired former employees of Flint. The injunction bars the city from enacting health benefit modifications that were originally proposed by the city’s state-appointed emergency manager, Michael Brown.

City finances first came under state oversight in 2011, case documents show, following years of declining property taxes, high unemployment and a decrease in revenue-sharing from the state of Michigan.

The following year, Brown imposed a series of orders modifying the city’s health and welfare benefits for its retired former employees, which had previously been collectively bargained and/or were the subject of prior city ordinances, case documents show. Changes included the termination of coverage for retirees if their spouses were eligible to receive paid coverage through a current or former employer; reductions in the number of available insurance providers, which had the effect of increasing deductibles, co-payments, and co-insurance costs; and a new requirement that retirees enroll in and pay for Medicare Supplemental Part B.

The city argued that if it was not permitted to enforce these changes, it would have to find another way to immediately reduce its expenses by $3.5 million, case documents show. The move was part of a wider effort to close a nearly $26 million budget deficit, which included tax and fee increases for city residents while cutting local government jobs and city workers’ salaries.

Plaintiffs in the case, who are class representatives, filed suit in August 2012. In lieu of an evidentiary hearing, the parties submitted depositions and other documentary evidence. Less than a year later, in March 2013, the district court granted the plaintiffs’ motion for a preliminary injunction, case documents show.

The district court held that the plaintiffs had satisfied the requirements for a preliminary injunction, including that they would be irreparably harmed because of the possibility that their medical care could be compromised due to the increased costs. 

The defendants subsequently appealed, leading to additional consideration by the circuit court into the question of whether, as the plaintiffs claimed, the changes to their benefits impaired their respective contracts and collective bargaining agreements in violation of the Contract Clause of the U.S. Constitution, among other procedural considerations relating to the appropriateness of the injunction.

Important to both the district and circuit court rulings was the determination that the city had failed to adequately consider alternative ways of addressing the deficit, case documents show. There was also significant debate around whether Brown's orders constituted a “legislative action,” thereby invoking the Contract Clause. The courts ultimately decided that his actions did, in fact, represent such action. 

Other important considerations related to whether the injunction would harm the public at large. The courts noted this was a difficult question given that the city’s public safety budget could potentially be reduced as a result of the injunction. In the end, the courts held that the city could reasonably pursue other options to balance its budget such that the district court had not abused its discretion.

A full copy of the 6th Circuit Court’s decision can be viewed here.

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