District Court Decision Reversed in Gallo Vs. Moen

The central issue in the case was whether several collective bargaining agreements entitled a class of retirees from Moen Inc. to vested healthcare benefits for life. 

The 6th U.S. Circuit Court of Appeals has overturned a district court’s decision in John Gallo, et al. vs. Moen Incorporated, citing a rather complex chain of precedents and reversed decisions in siding with the employer and permitting the firm to cease delivering health care benefits to some unionized retirees.

The main effect of the ruling is that a sizable class of retirees from Moen will lose out on health care benefits that had been granted to them (mistakenly, it turns out) as equitable relief by the United States District Court for the Northern District of Ohio at Cleveland. Case documents show that court granted relief to the class of retirees “based on UAW vs. Yard-Man, Inc., 716 (6th Circuit 1983), and other 6th Circuit decisions applying Yard-Man.”

But according to the 6th Circuit this decision was made in error, due to the tenants of a later series of cases and appeals that moved through the 6th Circuit and all the way up to the U.S. Supreme Court, known as M&G Polymers USA, LLC vs. Tackett, decided by SCOTUS in 2015, after the district court’s verdict in the current case. It’s not exactly an easy legal chain to follow, but in effect the 6th Circuit had to repudiate the Yard-Man line of cases based on the Supreme Court’s reversal of its decision in the M&G Polymers USA vs. Tackett case, and so, “consistent with Tackett, we must reverse the district court’s decision” in Gallo vs. Moen.

Background in case documents show that between 1983 and 2005, Moen and its predecessor corporations entered into a series of (usually) three-year collective bargaining agreements (CBAs) with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America and its local affiliate. “Each agreement offered two types of health-related benefits to individuals who retired from Moen’s plant in Elyria, Ohio: (1) hospitalization, surgical, and medical coverage and (2) Medicare Part B premium reimbursements, which compensated retirees for the expenses of participating in the federal government’s medical insurance program.”

Employees who retired between August 8, 1983, and March 1, 1996, along with their dependents, received “continued hospitalization, surgical and medical coverage . . . without cost.” If the retirees were over age 65, the company also reimbursed the full cost of their Medicare Part B premiums, and it did the same for retirees’ spouses over age 65. Employees who retired on or after March 1, 1996, along with their dependents, received hospitalization, surgical, and medical coverage upon payment of a co-premium. “The co-premium amount for the retiree,” the CBAs provided, “will be frozen at the co-premium in effect at [the] time of retirement.”

If over 65, these retirees (plus their over-65 spouses) received Medicare Part B premium reimbursements at specified rates.

NEXT: Where disagreement arose

Problems first arose when the parties terminated the last CBA in 2008, when Moen shut down its Elyria operations. The UAW and its local affiliate entered into a “Closure Effects Agreement” with Moen, providing that healthcare coverage “shall continue” for retirees and their spouses “as indicated under the [final] Collective Bargaining Agreement.”

Case documents explain the plant closed in December 2008. “After the plant closed, Moen continued to provide the same health care benefits to its retirees for a while. In March 2013, the company decreased the benefits available for retirees in response to ‘recent Medicare improvements’ and ‘more effective supplemental benefit plans,’ as well as the federal government’s imposition of an excise tax on high-cost ‘Cadillac plans’ through the Patient Protection and Affordable Care Act.”

After the changes, Medicare-eligible retirees no longer received health care coverage or Part B premium reimbursements, and the company shifted non-Medicare-eligible retirees to a healthcare plan that required higher out-of-pocket payments.

Seven retirees and the UAW subsequently sued Moen. The retirees argued that their health care benefits had “vested” under the CBAs and the plant closing agreement, prohibiting Moen from changing their coverage. The district court certified a class of “all Moen health care benefits plan participants” who had retired from the Elyria plant and who were not covered by an earlier settlement agreement. The class includes roughly 200 individuals.

“Both parties filed motions for summary judgment, and the district court granted the plaintiffs’ motion,” the 6th Circuit decision explains. “Relying on Yard-Man, the court concluded that the CBAs and the plant closing agreement required Moen to offer the same healthcare benefits to the retirees for life. The court also granted $776,767.19 in attorney’s fees and costs to the plaintiffs. Moen appealed.”

NEXT: Where the law comes down 

The 6th Circuit goes on to explain that this current case must be understood in the light of M&G Polymers USA, LLC v. Tackett, through which “the Supreme Court instructed us to interpret collective bargaining agreements according to ordinary principles of contract law.”

“The Supreme Court then instructed us what not to do in applying these principles. It repudiated Yard-Man and its heirs, directing us not to place a thumb on the scale in favor of vested retiree benefits in all collective bargaining agreements.”

In so doing, the Supreme Court rejected the 6th Circuits’ prior “inferences in favor of vesting health care benefits for life” as being “too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention.”

“It rejected our prior assumption that retiree health care benefits are not subjects of mandatory collective bargaining, pointing out that parties frequently voluntarily agree to bargain about retiree health care,” the 6th Circuit decision continues. “It rejected our premise that retiree benefits are a form of deferred compensation, reminding us that Congress has rejected that premise, per 29 U.S.C. § 1002(1), (2)(A)(ii). It directed us to consider the general durational clauses in the CBAs (usually three years) in deciding how long a company has committed to provide health care benefits to retirees.”

Further, the Supreme Court ruled that “courts should not construe ambiguous writings to create lifetime promises … And it explained that, when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.”

“The Court offered one more piece of guidance,” the 6th Circuit concludes. “At the same time it rejected Yard-Man, it endorsed our decision in Sprague v. General Motors Corp. (6th Cir. 1998). Sprague rejected the application of Yard-Man in the context of non-collectively bargained contracts about retiree health care benefits and refused to infer from silence and ambiguous contracts a commitment to unalterable healthcare benefits to retirees for life.”

The text of the 6th Circuit decision in Gallo, et al. vs. Moen Incorporated is here