TEMME v. BEMIS CO. (September 13, 2010)

Hayssen Manufacturing Company operated a facility in Sheboygan, Wisconsin until 1985. A strike during the summer of that year led to the company's decision to close the plant. The company and the union representing its workers entered into a Plant Closing Agreement (the “Agreement”). The agreement terminated the strike, all employment relationships, and the union bargaining relationship. It also addressed employee benefits. With respect to health benefits, it provided that terminated employees who were not eligible for or who did not apply for retirement benefits could continue their medical coverage for 12 months, or until they were covered by another plan, by paying the full monthly premiums. It further provided that individuals who qualified and elected to retire were eligible for retired employee medical benefits. Although the agreement did not define the scope of "retired employee medical benefits," the final Collective Bargaining Agreement (CBA) did. Among other terms, it provided for: a) two $50 deductibles per year, b) 100% prescription drug coverage, and c) dependent spouse coverage after the death of a retiree. The company provided those benefits, even after being acquired by Bemis Company, until 2004. In 2005, the deductible was increased to $250. In 2007, prescription drug coverage was eliminated. A class action was filed on behalf of the retirees. Judge Stadtmueller (E.D. Wis.) certified the class and granted summary judgment to Bemis. The class appeals.

In their opinion, Circuit Judges Kanne and Williams and District Judge Springmann reversed and remanded. The Court laid out several principles of contract interpretation: a) if a contract is not ambiguous, there is no need for external evidence, b) contract terms are given their ordinary meaning, c) a contract is read as a whole and in conjunction with related documents, and d) welfare benefits contracts are presumed not to create a lifetime vested benefit unless specifically provided. Applying those principles, the Court looked to both the Agreement and the CBA. It rejected Bemis’ argument that the CBA was extrinsic evidence, citing language in the Agreement expressly permitting reference to the CBA "to effectuate the provisions" of the Agreement. Reading the agreements together, the Court concluded that they unambiguously provided retired employees with health benefits. Bemis further argued, however, that any benefits were not vested for life. The Court disagreed, noting that the presumption against vesting is not as strong in a plant closing agreement as it is in, for example, a short-term collective bargaining agreement. It found several indicia of an intent to vest. It identified the "stark contrast" between the terminated employee and retired employee benefits. The retired employee benefits do not have an end date, as do those for the terminated employees. In addition, the provision granting coverage to spouses after the death of a retiree strongly implied an intent to vest lifetime coverage. Although the Court concluded that the Agreement provided for lifetime medical benefits (and it reversed summary judgment in Bemis' favor), it did not conclude that Bemis breached the agreement. The Court found questions of fact regarding whether any changes could be made to the lifetime coverage and the impact, if any, of a reservation of rights clause in the underlying insurance contract. The Court remanded for further determinations.