John T. Burks v. Amerian Cast Iron Pipe Company ( 2000 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
MAY 31 2000
THOMAS K. KAHN
No. 99-12191 CLERK
________________________
D. C. Docket No. 99-01085-CV-G-S
JOHN T. BURKS, CLAUDIA COOK, et al.,
Plaintiffs-Appellants,
versus
AMERICAN CAST IRON PIPE COMPANY,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(May 31, 2000)
Before BIRCH and BARKETT, Circuit Judges, and ALARCON*, Senior Circuit
Judge.
PER CURIAM:
*
Honorable Arthur L. Alarcon, Senior U.S. Circuit Judge for the Ninth Circuit,
sitting by designation.
Appellants/Plaintiffs are a group of retirees and their dependents who claim that
American Cast Iron Pipe Company (“Cast Iron”) promised them health benefits,
including free prescription drugs, for life. They base their claims on oral
representations, including a promise by Cast Iron’s former president, Steve Moxley,
in the 1950's that “[t]he reason we’re not getting the same raises as U.S. Steel is
getting is because we’re putting it into medical so you’ll get free drugs when you
retire.”
In addition to these oral representations, the plaintiffs allegedly relied on a
written plan description from 1973 promising lifetime health benefits without
reserving the right to amend the plan. The plaintiffs included a copy of a 1973 plan
booklet in the record excerpts provided on appeal; however, the 1973 document does
not appear to be in the actual district court record and will not be considered.1
Relying on these alleged representations and plan documents, the former
employees worked for Cast Iron until their retirement. They all retired before
September 2, 1974, the day the Employee Retirement Income Security Act (ERISA)
was enacted. For over twenty years, the retirees received free medical care and
medications through Cast Iron’s health clinic and in-house pharmacists.
1
At any rate, the 1973 booklet is not helpful to the plaintiffs, as it does not
appear to provide for free prescription drugs.
2
Then in 1993, a change in financial accounting standards (FAS No. 106)
increased the negative effect of the benefit plan upon Cast Iron’s financial statements.2
Cast Iron reacted by amending its benefit plan to require that the plaintiffs pay 25%
of the cost of their drugs and medicines. To soften the harm to the retirees, Cast Iron
increased pensions by forty dollars a month.
Unhappy with this change, the plaintiffs sued in Alabama state court, alleging
breach of contract, fraud, unjust enrichment, and conversion. Their complaint was
based not only on the required co-pay but also on claims of price-gouging by Cast
Iron’s pharmacists, who allegedly charged almost 900% of the Wal-Mart price for the
same medication. Although Cast Iron formed a committee in response to the retirees’
complaints about pricing, the plaintiffs claimed Cast Iron’s actions were inadequate.
They sought injunctive relief to ensure that Cast Iron’s pharmacists would charge
competitive prices.
Cast Iron removed the case to federal district court based on ERISA
preemption. That same day it filed a motion to dismiss or in the alternative for
2
For discussions of the negative effect of FAS No. 106 on retiree health
benefits, see, e.g., Wise v. El Paso Natural Gas Co., 986 F.2d 929, 932-33 and n.3 (5th
Cir. 1993); Gregory J. Ossi, Comment, It Doesn’t Add Up, 13 J. Contemp. Health L.
& Pol’y 233, 240 (1996) (noting that “[b]y the end of 1994, almost half of the
companies in the United States had modified retiree health benefits because of FAS
106").
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summary judgment, supported by an affidavit of its Director of Human Resources,
Leann Barr. Ms. Barr’s affidavit attached thirteen excerpts from various versions of
the health benefit plan (the “Plan”) and other plan documents dating from 1966
through 1993. These excerpts noted that benefits were not vested and reserved the
right to change or terminate benefits. Full plan documents were not provided.
Shortly after receiving Cast Iron’s motion, the district court entered a
scheduling order giving the plaintiffs fourteen calendar days to submit briefs,
affidavits and any other materials opposing summary judgment. The plaintiffs moved
to continue consideration of the summary judgment motion until they had a chance
to conduct discovery. Supporting their motion was an affidavit from their counsel
stating that discovery was necessary to review the entire plan documents, of which the
plaintiffs had received only excerpts, and to investigate the extent and nature of oral
representations regarding benefits. The plaintiffs also moved to remand the case to
state court on the grounds that ERISA did not preempt their claims.
The district court simultaneously denied the plaintiffs’ motions and granted
summary judgment against them. The court ruled that ERISA preempted the
plaintiffs’ claims because “[h]ealth care plans established by employers before
Congress enacted ERISA and that were maintained thereafter became subject to
ERISA in 1975.” The court implicitly ruled that ERISA’s enactment wiped out
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responsibilities based on actions or misrepresentations predating ERISA. It further
ruled that pre-ERISA employee handbooks and plan documents did not create vested
rights to health benefits.
The plaintiffs appealed. Because the district court improperly applied post-
ERISA substantive law to rights created before the enactment of ERISA, we affirm
in part and reverse in part.
DISCUSSION
We review the grant of summary judgment de novo, using the same standards
as did the district court. See Clark v. Coats & Clark, Inc., 990 F.2d 1217, 1222 (11th
Cir. 1993). The judge’s decision not to grant a continuance under Rule 56(f), Federal
Rules of Civil Procedure, is reviewed for abuse of discretion. See Carmical v. Bell
Helicopter Textron, Inc., 117 F.3d 490, 493 (11th Cir. 1997). We review the denial
of a remand motion de novo. See Butero v. Royal Maccabees Life Ins. Co., 174 F.3d
1207, 1211 (11th Cir. 1999).
Central to all the issues on appeal is the extent to which ERISA preempts the
claims of plaintiffs who all retired before ERISA’s effective date. When Congress
enacted ERISA in 1974, it greatly changed the responsibilities for sponsors and
administrators of employee benefit plans. Aware of the potential unfairness of
imposing ERISA’s requirements retroactively, Congress provided that ERISA “shall
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not apply with respect to any cause of action which arose, or any act or omission
which occurred, before January 1, 1975.” 29 U.S.C. § 1144(b)(1). This provision
contains inherent tensions where substantive rights were created before ERISA’s
effective date but the cause of action arose after it. See, e.g., Rochford v. Joyce, 755
F. Supp. 1423, 1426-27 (N.D. Ill. 1990) (discussing different circuits’ approaches to
§ 1144(b)(1) and citing cases). In Woodfork v. Marine Cooks & Stewards Union, 642
F.2d 966 (5th Cir. Apr. 1981), the predecessor to this court resolved the tensions by
ruling that whenever a cause of action for employee benefits accrues after January 1,
1975, ERISA preempts the mechanism for seeking relief. See id. at 970. This reading
of the statute promotes Congress’s goal of providing a federal forum for employee
benefit plan participants. See id. at 972.
The plaintiffs’ claims accrued at the earliest after 1993, when the Plan was
amended to require co-payment. See Vaughter v. Eastern Air Lines, Inc., 817 F.2d
685, 692 (11th Cir. 1987) (employee benefit claims accrued when participants
“became aware of the facts necessary to make their claims”). Alternatively, their
causes of action accrued even later, when they applied for 100% coverage of their
medications and were denied. See Paris v. Profit Sharing Plan for Employees of
Howard B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir. Feb. 1981) (ERISA “cause of
action does not accrue until an application [for benefits] is denied”). Therefore the
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plaintiffs must bring their claims under the section of ERISA that creates a cause of
action to recover benefits, enforce plan rights, or clarify entitlement to future benefits.
See 29 U.S.C. § 1132(a)(1)(B).3 Since ERISA “super-preempts” section
1132(a)(1)(B) claims even if they are brought in the guise of state law claims, the
judge properly denied the plaintiffs’ motion for remand. See, e.g., Metropolitan Life
Ins. v. Taylor, 481 U.S. 58, 63-64 (1987) (“any civil complaint raising this select
group of claims is necessarily federal in character”). But that does not end the
analysis.
The plaintiffs’ substantive rights to retirement benefits, including retiree health
benefits, were created before ERISA existed. ERISA cannot apply retroactively to
govern the rights and responsibilities that attached to the Plan before ERISA’s
effective date. Cast Iron recognizes this, for it argues in its brief that ERISA’s
summary plan description requirements did not apply retroactively to the 1973 plan
booklet. When participants’ rights form before ERISA’s effective date, the court as
a matter of federal common law must interpret the plan “in light of a worker’s pre-
ERISA state law rights.” Woodfork, 642 F.2d at 973. See also Sprague v. General
Motors Corp., 133 F.3d 388 (6th Cir. 1998) (en banc). In discussing liability for
3
Although the record is not fully developed, if Cast Iron’s in-house pharmacists
did indeed unreasonably overcharge for prescription drugs, potential additional causes
of action might exist under 29 U.S.C. § 1132(a)(2) or (a)(3).
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retiree health benefits based on summaries that pre-dated ERISA’s summary plan
description requirements, the Sprague court stated: “If the plaintiffs have any cause
of action based on [pre-ERISA] summaries, it is probably not one based on ERISA.”
Id. at 400. See also Jameson v. Bethlehem Steel Corp. Pension Plan, 765 F.2d 49, 51-
52 (3d Cir. 1985) (“ERISA’s substantive provisions are not to be used to determine
the law at the time of incidents occurring before January 1, 1975.”). In the present
case, the district court erred by applying ERISA substantive law retroactively to pre-
1975 responsibilities. Accordingly, we remand for the district court to consider
whether, under the law applicable to welfare benefit plans when the plaintiffs retired,
Cast Iron promised to cover 100% of the plaintiffs’ drug expenses–and whether that
promise was unalterable and irrevocable.
Extrinsic evidence may be necessary to illuminate plan documents if they are
ambiguous under state law. Cf. Stewart v. KHD Deutz of Am. Corp., 980 F.2d 698,
702-703 (11th Cir. 1993) (interpreting collective bargaining agreement under the
Labor Management Relations Act and Georgia law: when the agreement promised
benefits “during retirement” but also retained the right to “‘amend, modify, suspend
or discontinue’” employee benefit plans, it was ambiguous). Since discovery will be
necessary to address these issues, the district court abused its discretion in failing to
grant a continuance under Rule 56(f).
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Since the court may determine that the Plan could be amended with respect to
the plaintiffs after ERISA’s effective date and that post-ERISA amendments apply to
them, we address the effect of ERISA substantive preemption on the scope of
discovery and the propriety of summary judgment. The district court denied the
plaintiffs’ Rule 56(f) motion for continuance because “[d]iscovery will not take this
action out of the parameters of ERISA.” The court apparently believed that no
amount of discovery could enable the plaintiffs to oppose summary judgment once
ERISA preempted their claims. But even if ERISA does establish the parameters that
govern this action, the plaintiffs are not necessarily dead in the water.
The plaintiffs allege that written plan documents entitle them to lifetime
benefits and that they have been deprived of those benefits. In addition, they allege
price-gouging by in-house pharmacists. As discussed above, these facts support
claims under 29 U.S.C. § 1132(a)(1)(B) and possibly § 1132 (a)(2) and (a)(3). The
plaintiffs should be allowed to amend their complaint to state ERISA claims4 and to
conduct discovery, at least sufficient for them to review the applicable plan documents
4
See Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 976 (5th Cir.
Apr. 1981) (judge abused discretion in failing to grant motion for leave to amend
complaint to state ERISA claims; court can sua sponte allow plaintiff to amend state-
law complaint to state a claim under ERISA).
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in their entirety, to enable them to oppose Cast Iron’s motion for summary judgment.
ERISA preempts and does not recognize claims based on oral representations
that contradict unambiguous written plan terms. See, e.g., Alday v. Container Corp.
of Am., 906 F.2d 660, 665-66 (11th Cir. 1990). Accordingly, the need to scrutinize
plan documents in their entirety is crucial, particularly when those documents are in
the exclusive control of the defendant. The plaintiffs’ counsel properly noted this
need in his Rule 56(f) affidavit. In addition, discovery regarding price-gouging and
misrepresentation may be necessary to oppose summary judgment on fiduciary claims.
CONCLUSION
ERISA provides the exclusive cause of action for the plaintiffs’ claims, which
are based on promises that were allegedly broken in the 1990's, well after ERISA’s
effective date. As a matter of federal common law, however, the district court should
look to state law to answer the substantive question of whether the plaintiffs retired
(before ERISA’s effective date) under a promise to pay lifetime prescription drug
benefits that could not be amended or terminated. The district court should allow
discovery before considering summary judgment against the plaintiffs. Accordingly,
the denial of the motion for remand is AFFIRMED. The grant of summary judgment
10
against the plaintiffs is REVERSED. The denial of the plaintiffs’ motion for
continuance of consideration of summary judgment is REVERSED.
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