Sixth Circuit Affirms Summary Judgment For Employer In Retiree Health Care Class Action

Posted by Greg Mersol on September 28, 2012

We’ve commented in this blog before about the Sixth Circuit’s holdings regarding retiree healthcare under collective bargaining agreements.  Starting with the case of UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), the Sixth Circuit began to apply an “inference” that collectively bargained retire welfare benefits, primarily paid health insurance, would “vest” and would survive the clear expiration of the agreement.  Since that time, the Sixth Circuit has published many decisions in favor of the retirees and vesting, but very few in favor of the employer.  Just such a case has now been decided and should be of use to Sixth Circuit employers.

In Witmer v. Acument Global Technologies, Inc.pdf., Case No. 11-1793 (6th Cir. 2012), the company provided paid health insurance to its retired employees pursuant to a series of collective bargaining agreements.  These benefits were contained in an appendix to the contracts that contained a reservation of rights clause, a not uncommon arrangement.  In 2008, the last collective bargaining agreement expired and the employer discontinued providing the benefits.  A class of 64 retirees brought suit, contending that the benefits had vested under Yard-Man, but the district court granted summary judgment in the employer’s favor.

In a rare published pro-employer decision, the Sixth Circuit affirmed.  The court found that the plaintiffs were relying on an appendix that itself contained disclaimer language and could not meaningfully divorce that language from their claims.  Of equal significance, the court rejected much of the routine evidence used by plaintiffs in Yard-Man cases.  Perhaps most importantly, the court found that in light of the disclaimer, the contract was unambiguous and thus the plaintiffs could not rely upon extrinsic evidence, the core of virtually every garden-variety Yard-Man claim. 

The court also limited some of its prior rules of construction such as the plaintiffs’ argument that the benefits were “vested” because they were “tied” to pension benefits.  The court actually turned that rule against the plaintiffs, finding that limits on other types of retiree benefits also suggested that health insurance benefits did not vest.

Particularly in the wake of the decision two weeks ago in Reese v. CNH America LLC., Case Nos. 11-1359/1857/1969 (6th Cir. Sept. 13, 2012), employers in the Sixth Circuit may have greater flexibility to make changes to collectively bargained retiree health insurance benefits than they had only a few months ago.

The Bottom Line:  The Sixth Circuit has now upheld the use of disclaimer language, at least in some contexts, to change or eliminate retiree health insurance benefits in the collective bargaining context.

Sixth Circuit Permits "Reasonable" Changes To Welfare Benefits Under Yard-Man

Posted by Greg Mersol on September 17, 2012

In 46 states within the U.S., a collective bargaining agreement, and the obligations it contains, expires on its expiration date.  Thus, the parties must come to agreement as to the new terms at relatively regular intervals, taking into account market forces, changes in their relative bargaining positions, and their respective interests.   However, in 1983, the United States Court of Appeals for the Sixth Circuit rendered its decision in UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), in which it manufactured an “inference” that retiree welfare benefits, primarily paid health insurance, would “vest” and would survive the clear expiration of the agreement.

In the 29 years following Yard-Man, employers have been subject to numerous class actions brought by unions and retired bargaining unit employees seeking fully paid health insurance benefits. The Sixth Circuit has continued to apply the Yard-Man inference in addition to creating new rules of contract construction to promote the vesting of retiree health insurance benefits in the collective bargaining context.  No other Circuit Court of Appeals has agreed with Yard-Man, and every federal appellate court to consider it has rejected it.  In the meantime, in the four states lying within the Sixth Circuit, manufacturing employers have paid billions of dollars in legacy retiree medical benefits for which they would not have been liable anywhere else. 

But during those same 29 years, the world of health insurance has changed dramatically.  Everyone knows that health insurance costs have skyrocketed.  Health insurance plans, too, have changed, with physician networks, managed care, and a host of other cost controls.  The fully paid health insurance once available in the 1970s has all but disappeared for consumers and workers today.  Congress has altered the picture as well, in 2003 adding Medicare Part D providing prescription drug coverage, and, of course, the dramatic changes in health care upheld by the Supreme Court this summer in National Federation of Independent Business v. Sebelius, Case No. 11-393 (June 28, 2012).

The question posed by all of these changes in the Sixth Circuit then is whether, if welfare benefits “vest” as a result of Yard-Man, the employer can make changes to the benefits it provided in the distant pass. Employers received a welcome breath of fresh air last week in the Sixth Circuit’s decision in Reese v. CNH America LLC., Case Nos. 11-1359/1857/1969 (6th Cir. Sept. 13, 2012). 

Reese was a typical Yard-Man case in most respects.  The Reese case involved the employer’s obligation under a 1998 collective bargaining agreement to provide life-time retiree healthcare benefits. Unlike some Yard-Man cases, however, the employer had reduced but not terminated benefits outright.  Both the district court and Sixth Circuit disregarded the contract’s expiration clause under Yard-Man and held that the entitlement to benefits vested.  In 2009, however, the Sixth Circuit held that while the right to benefits had vested, the district court needed to determine whether the reduction in benefits was reasonable and it remanded the case.  Reese v. CNH America LLC., 574 F.3d 315, 318-20 (6th Cir. 2009).

On remand, the district court conducted no review of the reasonableness of the changes, but simply ruled that the employer could not make changes without the union’s consent.  The employer appealed again.

The Sixth Circuit’s opinion begins with the apt observation that “In litigation, as in film, sequels rarely satisfy.  This case is no exception.”  The court then went on to review many of the changes in health care that had taken place even since 1998 and also the district court’s failure to undergo the reasonableness analysis its first opinion had directed.  With reluctance, the court remanded the case again to develop facts relating to the reasonableness of the employer’s changes.  These included the cost of the benefits to the retirees under the old and new plans, changes in costs, quality of care, and the benefits provided to current employees. 

This second Reese decision is of vital importance to employers in the Sixth Circuit with retiree benefit obligations under Yard-Man because it not only recognizes their right to make reasonable changes to benefits, but reverses a district court for failing to do so and also sets standards for making that determination.  While the Reese standard is likely to be fleshed out in future case law, it may provide relief to employers with staggering retiree health care obligations.

The Bottom Line:  The Sixth Circuit now recognizes the right of unionized employers to make reasonable changes in retiree medical benefits under Yard-Man.

Fourth Circuit Expands ERISA Equitable Remedies

Posted by Greg Mersol on August 05, 2012

Authorship credit: Paul S. Enockson


Editor's Note: This post is a joint submission to Baker Hostetler's Class Action Lawsuit Defense blog.

 

ERISA class action litigation differs in important respects from many other types of employment class actions, in part because of its unique remedial provisions and continuing issues involving the scope of recovery.

 

In McCravy v. Metropolitan Life Insurance Co., the United States Court of Appeals for the Fourth Circuit held that equitable remedies were available to provide benefits in excess of those available under the plan to an ERISA life insurance beneficiary.  The McCravy case involved sympathetic facts for the claimant. 

 

In McCravy, the employee purchased employer-sponsored life insurance through Met Life for her daughter when the daughter was 19 years old.. The plan provided that the daughter’s eligibility ceased when she reached the age of 24, but the insurer continued to accept premiums after the daughter’s 24th birthday.  Tragically, the daughter was murdered when she was 25, and the insurer sought simply to return the modest premiums paid after she became ineligible under the plan. McCravy then sued Met Life claiming violations of ERISA Sections 502(a)(2) and 502(a)(3).  

 

The district court dismissed McCravy’s 502(a)(2) claim but granted McCravy summary judgment on her 502(a)(3) claim.  The district court, however, limited her damages to return of premiums.  The Fourth Circuit, which agreed to rehear the case in light of the Supreme Court’s decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), reversed the district court.  According to the Fourth Circuit, McCravy’s potential recovery in the case was not limited, as a matter of law, to return of her premiums.  In reaching its decision, the Fourth Circuit focused on the Supreme Court’s decision in Amara.   According to the Fourth Circuit, the Supreme Court “expanded the relief available to plaintiffs asserting breach of duty under” Section 502(a)(3) and remedies such as estoppel and surcharge are remedies traditionally available in courts of equity and therefore are available under Section 502(a)(3).  The Fourth Circuit’s decision is an indication that the debate over what types of remedies are in fact “equitable” for purposes of ERISA Section 502(a)(3) is far from over.

 

Equitable remedies likely will be further reshaped this fall.  In the Supreme Court’s October 2012 term, the United States Supreme Court will hear U.S. Airways v. McCutchen, Case Number 11-1285.  The Third Circuit in McCutchen, recognizing a split in the Circuits on the issue, held that equitable principles could limit a plan’s subrogation rights when the plan did not account for the attorney fees the claimant incurred in obtaining relief from a third party.  In McCutchen, the Supreme Court will consider whether equitable principles may limit a benefit plan’s reimbursement rights under ERISA notwithstanding a plan’s plain terms.  In essence, the Court will tackle the issue of whether equity allows the courts to override a plan’s language based on equitable principles of fairness to plan participations.

 

The Bottom Line:  The scope of equitable claims and defenses in ERISA litigation, both class and individual claims, remains unsettled.  Equitable remedies, however, are seldom—if ever—subject to bright lines rules, and this area will continue to generate controversy and litigation.

 

Federal Court Dismisses Retirees' Health Care Claims For Lack Of Standing

Posted by Gilbert Brosky on April 20, 2012

The Sixth Circuit has been a hotbed of class action litigation involving retiree healthcare under collectively bargained plans.  Retirees seeking benefits have prevailed in many such cases based on the 1983 Sixth Circuit case of UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983).  But what if an employer has only threatened to reduce benefits, but has not actually done so?  A federal court in Michigan recently held that an employer’s rescinded plan to eliminate health care benefits for retirees did not constitute an actual injury to the retirees sufficient for the court to assert jurisdiction. 

In Hawkins v. Howden Buffalo Inc., E.D. Mich., No. 2:05-cv-74437 (March 30, 2012), a group of retirees from defendant Howden Buffalo, Inc. brought an action for damages and declaratory relief under the LMRA and ERISA for alleged violations of collective bargaining agreements.  The crux of the plaintiffs’ allegations was that Howden was required to provide them with lifetime retiree health care under various collective bargaining agreements, and that Howden had informed them that their health care benefits would be terminated effective January 1, 2006.  However, on February 9, 2006, Howden sent out a retraction letter stating that it would not be terminating their health care coverage and that it had no present intention to terminate benefits in the future.   

In 2006, Howden filed a motion to dismiss on the grounds that the court lacked subject matter jurisdiction over the matter.  Howden argued that the plaintiffs lacked standing to pursue their claims because they had not suffered an actual injury and were essentially asking the court to provide an impermissible “advisory opinion.”  The court agreed.   

The court noted that in order for it to have jurisdiction, there must be “a real and substantial controversy” and that “[a]llegations of possible future injury do not satisfy the requirements of Art. III.”  The court also noted that while section 512(a)(1) of ERISA allows plan participants to assert an action to clarify future benefits, it does not abrogate the requirement that there must be an injury in fact in order for the court to assert jurisdiction over the matter.  Likewise, while declaratory relief is available under section 301 of the LMRA, the court found that it must have jurisdiction over an action before it can determine whether declaratory relief is appropriate.  

The court then held that the plaintiffs had not suffered an actual injury and that any claimed injury was merely speculative in nature.  The court found it determinative that while Howden announced it would terminate benefits, it rescinded its intention to terminate benefits before taking any action.  The court also found it significant that Howden announced that it had no intention to revise benefits in the future.  The court found the plaintiffs’ cited case law distinguishable because it dealt with actual changes in benefits such as increasing co-payments and deductibles.  In contrast, the court found that the plaintiffs were receiving the exact same benefits as they were receiving prior Howden’s letter advising that benefits would be terminated.  Because there was only a possible threat of future change in health care, the court concluded that it “cannot make a declaration based on hypotheticals.”

The Bottom Line:  An employer’s rescinded intention to eliminate health care benefits, standing alone, does not provide retirees with standing to bring a federal lawsuit to prevent the employer from again changing its mind at a later date.    

ERISA Class Actions Still Being Certified Post-Dukes

Posted by Greg Mersol on April 09, 2012

Authorship credit: Paul S. Enockson

ERISA class certification motions routinely cite cases for the proposition that ERISA cases are the paradigmatic example of cases that are appropriate for class certification.  The United States District Court for the Southern District of Ohio’s recent decision in Adams v. Anheuser-Busch Companies, Case No. 2:10-cv-826, provides continuing support for this oft-cited proposition even after the Supreme Court’s decision in Wal-Mart-Stores, Inc. v. Dukes.

In Adams, the named plaintiffs, former employees of an Anheuser-Busch subsidiary, sought to pursue claims on behalf of a class of former employees for denial of benefits under ERISA § 502(a)(1)(B) , 29 U.S.C. Sec. § 1132(a)(1)(B), and for breach of fiduciary duty under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2).  The claims at issue were based on plaintiffs’ claim that when their AB subsidiary was sold, they had been “involuntarily terminated” under the AB Pension Plan.  The plaintiffs’ claims for benefits were denied and, after the named plaintiffs exhausted their plan remedies, they filed a class action lawsuit.

The District Court in Adams certified the class.  In discussing commonality, the District Court cited without any significant discussion the Supreme Court’s Dukes opinion.  According to the District Court, common questions of law existed because the meaning of the AB Pension Plan’s provisions regarding change of control and involuntary termination were at issue.  The Adams Court also concluded that common questions of fact existed because the class was comprised of former employees impacted by the same fiduciary decision, and the same denial of benefits determination.

Despite suggestions of the demise of class actions following the Supreme Court’s decision in Dukes, the Adams decision is an indication that little has likely changed in ERISA class actions.  For cases that involve challenges to fiduciary decisions that impact an ERISA governed plan, it will likely remain the case that certification will continue to be the de facto result.

The Bottom Line:  Successful challenges to class in ERISA cases on commonality will continue to be left to those cases where questions of law or fact are so individualized that commonality can be defeated by showing the unique and individualized nature of the claims for which certification is being sought—the same challenges that were common before Dukes.

Editor’s Note: This post  is a joint article for the Baker Hostetler Class Action Lawsuit Defense and Employment Class Action Blogs.  Be sure to visit the Class Action Lawsuit Defense Blog for additional content regarding class action news and developments.

Plaintiffs Swallow Bitter Pill With Dismissal of Class Breach of ERISA Fiduciary Duty Claim for Alleged Wage and Hour Violations

Posted by Jeffrey Vlasek on March 19, 2012

The case of DeSilva v. North Shore-Long Island Jewish Health System, Inc., Case No. 10-CV-1341-JFB-ETB (E.D.N.Y. March 7, 2012), began small, like a lone cough one winter’s morning, before escalating into a full-blown cold, complete with hacking and wheezing.  At first there were six plaintiffs working as nurses.  After two amended complaints, however, the purported class rose to nearly 38,000 current and former employees, enough to make any defendant employer break out in a cold sweat.  They alleged that their pensions and 401(k) or 403(b) plans were not credited with their non-reduced weekly wages and correct overtime compensation.  These claims, however, were actually the symptoms of a much deeper, deadlier problem alleged by plaintiffs: that the defendant maintained three illegal pay policies – the meal and break deduction policy, the unpaid pre-and post-schedule work policy, and the unpaid training policy.  The only cure, of course, was a prescription-strength dose of unpaid wages (among other penalties).

In mid-2011, the defendants filed a motion to dismiss while plaintiffs simultaneously sought expedited notice to the affected employees under 216(b) of the FLSA.  After hearing oral arguments (and nearly nine months of pondering), the court ultimately ruled on the plethora of claims, including (somewhat unusual in an employment context) RICO violations, wire fraud, and forced labor allegations.  More common, however, were plaintiffs’ allegations that defendants had breached their fiduciary duty under ERISA.  The court, in what amounted to a quick nip and tuck of only two paragraphs, examined the plan documents themselves and held that, because the benefits at issue were tied only to compensation paid – not to hours worked or compensation earned through hours – the plaintiffs had failed to state an ERISA cause of action.  Accordingly, the breach of fiduciary duty claims under ERISA were dismissed with prejudice.

Before finally suturing up its decision on the plethora of issues, the court also denied the defendants’ request for dismissal on grounds of Labor Management Relations Act preemption.  Adopting a “wait and see” approach, the court held that the proper time to make the preemption determination was after it was clear whether or not interpretation of the collective bargaining agreements was necessary to decide their claims.

The Bottom Line: Contrasting the age-old medical adage of “take two and call me in the morning,” the court’s ruling here affirms that plaintiffs cannot merely plead a breach of fiduciary duty claim under ERISA and expect results.  One must pay close attention to what the plan documents specify; in this case, the benefits were directly linked to the compensation actually paid, and not the hours worked.  As a result, plaintiffs found themselves discharged and holding the bill.

Court Applies Kentucky's 15-Year Statute of Limitations for ERISA Class Action Claims To Recover Benefits Due Under Terms of Plan

Posted by M. Scott McIntyre on December 01, 2011

At present, most employment class actions relate to wage and hour issues, but there are still many (and frequently hugely expensive) ERISA class actions challenging a host of benefits issues. A recent case underscores that the threat of ERISA class action litigation can be exacerbated by a very long statute of limitations.

ERISA does not contain a statute of limitations for claims to recover benefits due under the terms of a plan. Courts apply the most clearly analogous state statute of limitations to these claims. Breach of contract claims typically allow for a relatively longer statute of limitation period than for other causes of action. As a result, plaintiffs often seek to characterize the ERISA cause of action as a contract claim to take advantage of a longer statute of limitation period. See, e.g., Meade v. Pension Appeals and Review Committee, 966 F.2d 190 (6th Cir. 1992) (applying Ohio’s fifteen-year statute of limitations to alleged wrongful denial of permanent disability benefits under terms of ERISA-governed pension plan).

In Clemons v. Norton Health Care Inc. Retirement Plan, No. 08-69-C, 2011 WL 5519823 (W.D. Ky. Nov. 14, 2011), the United States District Court for the Western District of Kentucky held that Kentucky’s fifteen-year statute of limitations for contracts, KRS § 411.090 applied to the plaintiffs’ claim for benefits due under the terms of a plan. The certified class consisted of retirement plan participants who claimed that the Norton Healthcare Retirement Plan (“Plan”) made several errors when calculating their contractual lump sum retirement benefits. For example, the class claimed that the Plan failed to include the value of an annual cost of living adjustment and/or an alternative lump sum benefit when doing so would have yielded the highest value for the participant.

The Clemons court rejected the Plan’s argument to apply Kentucky’s default five-year statute of limitations for actions upon a liability created by statute, KRS § 413.120(2). It held that the cause of action did not arise from ERISA’s statutory protections, but was instead based on an independent promise or contract. The Court found that the plaintiffs’ claim for equitable relief under ERISA § 502(a)(3) based on a violation of the plan is not the same as asserting ERISA-specific statutory grounds for relief. As a result, Kentucky’s fifteen-year limitations period for breach of contract applied. The Court further held that the claims accrued on the dates the individual plaintiffs received their lump sum distributions.

Clemons distinguished two federal cases that applied Kentucky’s five-year statute of limitations to ERISA claims. In Redmon v. Sud-Chemie Inc. Retirement Plan for Union Employees, 547 F.3d 531 (6th Cir. 2008), the allegation centered on a waiver of survivor benefits that allegedly violated ERISA’s statutory protections. In Fallin v. Commonwealth Indus. Inc. Cash Balance Plan, 521 F.Supp.2d 592, 597 (W.D. Ky. 2007), the action was premised on an alleged violation of ERISA § 502 due to changes to an employee retirement plan. Clemons found that, in contrast, the class was not suing on statutory rights provided by ERISA; rather, the state law claims for breach of contract were preempted by ERISA.

The Bottom Line: ERISA cases can have extremely long statutes of limitation. When the plaintiffs seek relief primarily to recover benefits allegedly due under the terms of an ERISA-governed plan and the dispute centers around rights under a contract, the statute of limitations in Kentucky is fifteen years, not five years.

Retiree Class Action Remanded To State Court For "Untimely-ish" Removal

Posted by Todd Dawson on March 21, 2011

A wise man (who we'd never heard of until searching for witty quotes with which to open this article) once said, “Procrastination is the bad habit of putting off until the day after tomorrow what should have been done the day before yesterday.”   The UAW will undoubtedly attest to this notion following the decision earlier this year from the Fourth Circuit in Barbour, et al. v. UAW, et al.pdf.

The plaintiffs in Barbour claimed that the UAW International and two of its locals lured them into a January 31, 2007 retirement from a Chrysler plant in Maryland by assuring them that any retirement incentive plan announced later that year would apply retroactively.  Anyone care to guess what happened next?  If you said, "A retirement incentive plan was announced later that year but wasn't retroactive," congratulations, you've been paying attention!  In fact, it was announced two weeks later, in mid-February.  (Kind of an incredible timetable since, if the UAW is to be believed, there was no incentive plan in the works as of the end of January....)

The plaintiffs sued both the International and the two locals on a wonderful assortment of state law claims.  The International was served on March 20, 2008, and the first local was served nine days later on March 29th.  These two defendants filed a notice of removal in federal court on April 28, 2008, the thirtieth day following service on the first local.  (The second local--apparently the most adept of the three at dodging service--was not served until after the case was removed.)   So far so good, right?

Wrong!  The Fourth Circuit rejected recent case law from the Sixth, Eighth and Eleventh Circuits, and held that the 30-day time limit for removal does not begin to run when the last defendant is served.  Rather, the court held, the first-served defendant has 30 days after service to remove the case.  If the case is removed, defendants who are served thereafter have 30 days from their own date of service in which to decide whether to join the removal or move to remand.  Here's the catch, however - if the first-served defendant decides not to remove the case, the case stays in state court regardless of whether subsequently served defendants wish for it to be removed.  So, if the plaintiff serves the first defendant more than 30 days before serving anyone else, the subsequent defendants may be left wafting up a creek with 'nary a paddle in sight. 

But no, you say!  How can that be fair to the poor, subsequently served defendants?  Well, the Fourth Circuit explained, it's not unfair because that first-served defendant obviously will have identified the potential bases for removal, weighed all the risks and benefits of each, studied the relevant case law and arrived at a carefully reasoned decision that the case should remain in state court.  Thus, the court reasoned, even if the subsequently served defendants did have some theoretical right to remove the case to federal court, the first-served defendant would nix the idea based on its aforementioned, carefully thought out decision.  The much-beloved rule of unanimity (which, by the way, isn't in the statute) would see to it.

This seems to us like a pretty big assumption.  It's not hard to conceive of a situation in which the first defendant would forego removal based on something other than an analysis of the issues, particularly in some of the more arcane realms of employment and labor law where field preemption guards the castle walls and the well-pleaded complaint rule stands lonely on the opposite side of the moat.  (What would the world be without overdramatic metaphors?)  On the other hand, at least based on the facts described in the Fourth Circuit's opinion (which may not be complete), it's difficult to understand the motive for waiting until the last possible day to remove a case.

The Bottom Line:  If removal is a possibility, be cautious and thoughtful in deciding when to file the petition, particularly if other defendants are served first.

The Western District of Texas Shows Some True Grit By Refusing To Grant Conditional Certification

Posted by Jeffrey Vlasek on January 10, 2011

In this day and age, finding a court to deny conditional certification of a proposed FLSA class is sometimes about as difficult as successfully remaking a classic Hollywood western with modern actors and sensibilities.  But, just as the Coen Brothers’ True Grit continues to surprise audiences and critics alike as one of the finest remakes in years, the recent decision in Botello v. COI Telecom, LLC, Case No. SA-10-CV-305-XR, from the Western District of Texas, has proven that not everything turns out the way you would expect.

The court in Botello considered the plight of a group of Field Service Technicians (FST) or former FSTs of the defendants.  The plaintiffs opened fire with both barrels and alleged that COI and Time Warner violated the FLSA when they failed to pay overtime wages, and that they violated ERISA when they denied the plaintiffs pension, health, disability, and other benefits.  Additionally, the FSTs loaded their wagon with a slew of other claims, as well, including unjust enrichment, deceptive trade practices, negligent misrepresentation, promissory estoppel, and fraud. 

While the story of the FSTs and the defendants could be told in campfire tale fashion, it would be a tedious one filled with talk of direct control of duties.  COI provided telecommunications and fiber optics systems integration in the Texas area.  Sometime in late 2003 or early 2004, it re-characterized its relationship with FSTs from employees to independent contractors.  One of COI’s customers was Time Warner, which entered into an Installation Services Agreement with COI.  Included in that agreement was a paragraph requiring any disputes to be submitted to binding arbitration (a fact which, like the pursuit of Lucky Ned’s gang to the silver mine, ultimately led to a dead end).

Several pages of the court’s decision are devoted to describing the myriad ways that Time Warner exerted control over the independent contractors.  In no particular order, and certainly not encompassing the entire gamut of examples provided, the plaintiffs testified that: 1) they were subject to being “fired” by Time Warner; 2) they had their homes checked for any illegal cable hookups prior to hiring; 3) FSTs could only wear headgear that had Time Warner or COI on the cap; 4) FSTs were required to wear a badge that designated them as a Time Warner contractor; 5) they were fined if they were not wearing hats that said COI when climbing utility poles; 6) they were required to display magnetic signs on their vans with COI’s logo and Time Warner’s phone number; 7) some FSTs were required to use a portable device that would transmit information directly to Time Warner regarding jobs and invoices; 8) and if someone needed to change their daily assignments, they needed approval from COI or Time Warner.

Keeping all of that (and more) in mind, the plaintiffs requested the court certify a class on their ERISA and unjust enrichment claims under Rule 23.  Among other things, the defendants argued that some of the plaintiffs were bound by the aforementioned arbitration agreement, while others were not.  Using the analysis provided by Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), however, the court determined that the arbitration agreements in and of themselves did not preclude plaintiffs from seeking that a court certify a class and adjudicate a class claim. 

Galloping along, the court also concluded that the proposed class members were not harmed in substantially the same manner, as many of the FSTs chose not to purchase health insurance, and the plaintiffs could not agree whether the purchase of equipment from COI was optional or mandatory and whether or not financing was available.  

More importantly, perhaps, to the realm of employment law was the court’s decision on the plaintiffs’ motion for conditional class certification.  As mentioned above, the plaintiffs moved to allow the FLSA claim to proceed as a collective suit, and thus receive the names, addresses, and telephone numbers of the potential class members to effectively distribute notice.  The court employed the Lusardi approach, and began the trademark Lusardi analysis by looking only at the pleadings and affidavits to determine whether notice should be sent out.  Because so many courts, at least at times, seem to view this first stage as merely a formality on the way towards progressing into the discovery phase of the action, the court’s decision not to conditionally certify the collective action sounded like a gunshot in the middle of night, and it may prove helpful to employers defending similar lawsuits in the future.

When considering whether or not to grant conditional certification for discovery purposes, the court agreed that the plaintiffs made a “plausible” argument that they were improperly characterized as independent contractors, and that both COI and Time Warner were joint employers.  The court pointed out, however, that other issues should be taken into consideration—namely, that FSTs working in San Antonio were treated differently than those working in other cities, and that the same was true for FSTs working in Austin.  It therefore determined that conditional certification was not appropriate, as the collective action members would not be similarly situated.  In many ways, the court’s determination sounds almost like a second stage analysis in the Lusardi paradigm, albeit only with the benefit of reading the initial pleadings and affidavits.

Ultimately, just as Mattie Ross gets her revenge on Tom Cheney (SPOILER ALERT), Time Warner had its day, as well, when the court granted it partial summary judgment on various ERISA and unjust enrichment issues.  And when the dust cleared from the denial of conditional certification and the Rule 23 certification, only a handful of claims are left against the various defendants. 

The Bottom Line:  While it has become less common for a court to deny conditional certification, Botello now stands as a recent example that courts can (and do) find that plaintiffs are not substantially similar based solely on the pleadings and affidavits alone.

Class Decertified in Case of Former Sales Representatives Asserting ERISA Claims

Posted by Gilbert Brosky on August 12, 2010

A federal court in New York decertified a class former sales representatives who claimed that Defendant Linvatec Corp. violated ERISA when it denied severance benefits after the division where the representatives worked was outsourced. Thompson v. Linvatec Corp., No. 6:06-CV-00404 (N.D.N.Y. 6/22/2010). After reviewing the plan documents, the court narrowed the original class definition of "former Linvatec employees who were involuntarily terminated in 2003 and did not receive severance benefits" to only include employees who were not offered employment after being terminated. The court then found that 70 of the 75 sales representatives that were separated accepted offers to work as independent contractors/sales representatives for the outsourced sales division, and agreed with Linvatec that this constituted an “offer of employment” sufficient to disqualify the representatives from severance benefits under the terms of the unfunded severance plan. Therefore, the court found that the remaining 5 named plaintiffs did not meet the numerosity requirement for class certification and dismissed their individual claims on summary judgment.

The bottome line: This case reaffirms that employers are afforded discretion to interpret their own ERISA plan documents, which is particularly important in today’s economic climate.  Without such discretion, employers could be forced to assert their right to terminate such unfunded benefit plans. 
 

Sixth Circuit Holds Class Members' ERISA Claims Accrued When They Knew Their Benefits Changed

Posted by Gilbert Brosky on August 08, 2010

The Sixth Circuit recently reversed an injunction that required Caterpillar to pay lifetime health care costs to a subclass of 275 former employees upon finding the subclass members’ ERISA claims were time-barred.  Winnett v. Caterpillar, Inc., No. 06-00235 (6th Cir. 6/22/2010). The plaintiffs filed their lawsuit on March 28, 2006 and claimed Caterpillar breached a 1988 CBA provision which committed to provide “free, unalterable, lifetime healthcare benefits for retirees.” However, a subsequent 1998 CBA and corresponding summary plan documents altered the healthcare benefits available to retirees and announced new costs for obtaining them. The court found that the plaintiffs’ cause of action accrued when they knew of Caterpillar’s change in benefits – which occurred in 1998 when Caterpillar announced the changes - and not when they felt its effects as the plaintiffs alleged. Thus, the Court held the plaintiffs filed their claim too late under the applicable 6-year statute of limitations.

The bottom line: This case is an important victory for employers in that an ERISA statute of limitations defense can be successfully raised without obtaining onerous evidence as to when each employee or retiree felt the affects of a change in benefits.