6th Circuit botched contract law by favoring retiree benefits in ambiguous union pacts, SCOTUS says
The U.S. Supreme Court has ruled against retirees who argued their health benefits could not be cut after expiration of their collective bargaining agreement.
Justice Clarence Thomas wrote the unanimous opinion (PDF) finding that a federal appeals court was wrongly favoring retirees when interpreting ambiguous union contracts governing insurance benefits. The case now goes back to the appeals court for another look at the contract.
The case was filed by a group of West Virginia retirees against M&G Polymers USA, the current owner of the plant where they had worked. The retirees sued after M&G announced in December 2006 that it would begin requiring retirees to contribute to the cost of their health-care benefits.
The workers’ union contract had said that workers who had had sufficient years of service would receive a full contribution to health-care benefits. The agreement was to be renegotiated in three years.
Building on 1983 appellate precedent, the Cincinnati-based 6th U.S. Circuit Court of Appeals had used inferences to find that benefits continued after the expiration of the union contract.
But Thomas said the 1983 case, known as Yard-Man, “violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements. That rule has no basis in ordinary principles of contract law.”
Thomas said the 6th Circuit failed to consider the traditional principle that courts should not construe ambiguous writings to create lifetime promises. He ordered the case remanded to the appeals court “to apply ordinary principles of contract law in the first instance.”
In a concurring opinion, Justice Ruth Bader Ginsburg wrote that, when a contract is ambiguous, courts may use extrinsic evidence—such as bargaining history–to determine the intent of the parties. Her concurrence was joined by Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan.
“Contrary to M&G’s assertion,” Ginsburg wrote, “no rule requires ‘clear and express’ language in order to show that parties intended health-care benefits to vest.”
The case is M&G Polymers USA v. Tackett.
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