Post on 27-Feb-2018
No. 10-1558
In The
United States Court of Appeals
For The Seventh Circuit
JOHN SULLIVAN, WILLIAM PHILLIPS, )
KAREN WITHEE, PAUL SPECHT, and ) Appeal from the United States District
THOMAS OLSON, Individually and as ) Court for the Western District of
Class Representatives, ) Wisconsin, Honorable Barbara B. Crabb,
) Judge Presiding
Plaintiffs-Appellants )
)
v. ) Case No. 09cv455
)
CUNA MUTUAL INSURANCE )
SOCIETY, and CUNA MUTUAL )
GROUP MEDICAL CARE PLAN )
FOR RETIREES, )
)
Defendants-Appellees. )
PETITION FOR REHEARING AND SUGGESTION OF REHEARING EN BANC
Mark D. DeBofsky James A. Olson
Daley, DeBofsky & Bryant Dixon R. Gahnz
55 W. Monroe St., Suite 2440 Lawton & Cates, S.C.
Chicago, Illinois 60603 10 East Doty Street, Suite 400
(312) 372-5200 P.O. Box 2965
Madison, WI 53701-2965
608-282-6200
Attorneys for Plaintiffs-Appellants
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No. 10-1558
CERTIFICATE OF INTEREST
Short Caption: Sullivan v. CUNA Mutual
The undersigned counsel of record for Plaintiffs-Appellants, furnishes the
following list in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1:
A. The full name of every party or amicus the attorney represents in this case:
John Sullivan
William Phillips
Karen Withee
Paul Specht
Thomas Olson
B. If such party or amicus is a corporation:
A. Its parent corporation if any and:
N/A
B. A list of stockholders which are publicly held companies owning
10% or more of the stock in the party or amicus:
N/A
C. The names of all law firms whose partners or associates have appeared for the
party in the case or are expected to appear for the party in this court:
Plaintiffs-Appellants were represented in the district court by James A. Olson,
Dixon R.Gahnz and Heather Curnutt and the law firm of Lawton & Cates, S.C.,
along with Mark D. DeBofsky and the law firm of Daley, DeBofsky & Bryant.
With the exception of Ms.Curnutt, the same attorneys continue to represent the
Plaintiffs-Appellants with respect to this Petition for Rehearing.
Attorney‟s Signature: ________________________________
Attorney‟s Printed Name: Mark D. DeBofsky
Date: September 19, 2011
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i
TABLE OF CONTENTS
STATEMENT FOR SUGGESTION OF REHEARING EN BANC ................................. 1
INTRODUCTION .............................................................................................................. 3
ARGUMENT ...................................................................................................................... 6
I. THE PANEL DECISION IS INCONSISTENT BOTH WITH AMARA AND WITH
PRIOR CIRCUIT RULINGS ..................................................................................... 6
II. THE PANEL DECISION CONFLICTS WITH OTHER CIRCUITS‟ RULINGS .. 13
III. THE PANEL DECISION UNDERMINES ERISA‟S PURPOSE .......................... 14
CONCLUSION ................................................................................................................. 14
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ii
TABLE OF AUTHORITIES
CASES
Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th
Cir. 1993)(en banc) ....................... 2, 11
Bland v. Fiatallis North America, Inc., 401 F.3d 779 (7th
Cir. 2005) ............................... 10
Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (2004) ....................................... 2
CIGNA Corp. v. Amara, U.S. , 131 S.Ct. 1866 (2011) ....................................... passim
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) ......................................... 3, 5
In Re Unisys Corp. Retiree Med. Benefit "ERISA" Litig., 57 F.3d 1255 (3d Cir. 1995) .. 13
In re Unisys Corp. Retiree Medical Benefits ERISA Litigation, 579 F.3d 220 (3d Cir.
2009) ..................................................................................................................... 2, 6, 13
Inter-Modal Rail Employees Association v. Atchison, Topeka and Santa Fe Railway Co.,
520 U.S. 510 (1997) ........................................................................................................ 9
James v. Pirelli Armstrong Tire Corp., 305 F.3d 439 (6th
Cir. 2002) ...................... 2, 6, 13
Keffer v. H.K. Porter Co., Inc., 872 F.2d 60 (4th
Cir. 1989) ............................................. 12
Kenseth v. Dean Health Plan Inc., 610 F.3d 452 (7th
Cir. 2010) ........................................ 7
Miller v. Taylor Insulation Co., 39 F.3d 755 (7th
Cir. 1994) .............................................. 5
Rosetto v. Pabst Brewing Co., Inc., 217 F.3d 539 (7th
Cir. 2000) .......................... 2, 10, 11
Roth v. City of Glendale, 237 Wis. 2d 173, 614 NW 2d 467 (2000) ................................ 12
Schlosser v. Allis-Chalmers Corp., 271 N.W.2d 879, 889 (Wis. 1978) ............................. 5
Vallone v. CNA Financial Corp., 375 F.3d 623 (7th
Cir. 2004) ...................................... 7, 9
STATUTES
29 U.S.C. § 1001 ................................................................................................................. 2
29 U.S.C. § 1001(b) .......................................................................................................... 21
29 U.S.C. § 1106(a)(1)(D) ................................................................................................ 14
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iii
29 U.S.C. § 1132(a)(1)(B) ................................................................................................ 11
29 U.S.C. § 1132(a)(3) .................................................................................................. 1, 11
29 U.S.C. § 1140 ............................................................................................................... 13
OTHER AUTHORITIES
FASB 106 – “Employers‟ Accounting for Postretirement Benefits Other than Pensions” 7
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1
STATEMENT FOR SUGGESTION OF REHEARING EN BANC
The decision of the Court of Appeals issued on August 10, 2011 should be
reheard; and it is respectfully suggested by Plaintiffs-Appellants that this matter be
reheard en banc. In accordance with Fed.R.App.P. 35(b)(1)(A) and (B), rehearing is
required in order to reconcile this ruling with the Supreme Court‟s recent ruling in
CIGNA Corp. v. Amara, U.S. , 131 S.Ct. 1866 (2011), a case decided after the oral
argument held in this matter, as well as to resolve intra-circuit and inter-circuit conflicts.
This case presents an issue of exceptional importance involving retiree health insurance:
Whether, and under what circumstances, can an employer‟s promises relating to retiree
health insurance avoid being trumped by reservation-of-rights clauses in the governing
benefit plan?
In particular, the panel decision upholding the dismissal of CUNA Mutual
Insurance Society and CUNA Mutual Group Medical Care Plan for Retirees is at odds
with Amara, which the parties had no prior opportunity to brief or argue. There, the
Supreme Court held that terms of employee benefit plans must be enforced as written
with respect to benefits claims brought pursuant to 29 U.S.C. § 1132(a)(1)(B).1
However, the Court further determined that false and misleading information and
omissions in communications provided to employee benefit plan participants constituted
a breach of fiduciary duty actionable pursuant to 29 U.S.C. § 1132(a)(3). So long as the
plan participant suffered actual harm, the loss was remediable by application of either the
1 The panel majority acknowledged that portion of the Amara ruling. Slip. Op. at 8. However,
the opinion contained no discussion at all about Amara’s recognition that misrepresentations and
material omissions such as those at the heart of this matter are remediable pursuant to 29 U.S.C. §
1132(a)(3).
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equitable remedy of reformation of the terms of the plan, estoppel, or the equitable
remedy of surcharge.
Here, the Plaintiffs pled a claim for breach of fiduciary duty as well as equitable
estoppel; and the dissent pointed to the viability of such a claim (Slip Op. at 22
(Hamilton, J., dissenting)) consistent with Amara’s suggestion that plan sponsors be held
“to what it promised, namely, that the new plan would not take from its employees
benefits they had already accrued.” 131 S.Ct. at 1880. Given the Supreme Court‟s
emphasis on “fair dealing,” the invocation of the reservation-of-rights trump is
inconsistent with those fiduciary obligations, along with the plan beneficiaries‟ equitable
rights and remedies recognized in Amara.
The panel decision is also in considerable tension with prior decisions of this
Court issued in Rosetto v. Pabst Brewing Co., Inc., 217 F.3d 539 (7th
Cir. 2000) and
Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th
Cir. 1993)(en banc) describing how
ambiguities with respect to promises of lifetime retiree health benefits could create vested
rights. In addition, the majority panel ruling conflicts with rulings issued by the Third
and Sixth Circuits in In re Unisys Corp. Retiree Medical Benefits ERISA Litigation, 579
F.3d 220 (3d Cir. 2009) and James v. Pirelli Armstrong Tire Corp., 305 F.3d 439 (6th
Cir.
2002) which ruled that under certain circumstances, promises of retiree health benefits
may supplant reservation-of-rights clauses. And fundamentally the majority panel
decision is contrary to the basic purpose of the Employee Retirement Income Security
Act (ERISA), 29 U.S.C. § 1001 et seq. as expressed by the Supreme Court in Central
Laborers’ Pension Fund v. Heinz, 541 U.S. 739, 743 (2004) which focused on the
“centrality of ERISA‟s object of protecting employees‟ justified expectations of receiving
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3
the benefits their employers promise them.” Also see, Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 113 (1989)(“ERISA was enacted „to promote the interests of
employees and their beneficiaries in employee benefit plans,‟ … and „to protect
contractually defined benefits.‟” (citations omitted).
INTRODUCTION
Plaintiffs were offered a significant post-retirement benefit memorialized in a July
9, 1982 memorandum issued by Robert Wermuth, Executive Vice President of CUNA
Mutual Insurance Society (Supp.App. (“SA”) 66-67 (“Wermuth memo”)). Non-union
employees were promised they could recoup 70% of the value of their earned and unused
sick leave hours to fund their retiree healthcare; and they were also promised a
percentage subsidy of their retiree healthcare insurance premiums dependent on the
length of their employment with CUNA Mutual.
The benefit created by the Wermuth memo is unique among the litigated cases
involving retiree health benefits sought by non-collective bargaining unit employees.
Unlike the typical situation involving an employer‟s unilateral promise of post-retirement
health insurance, the sick leave credit was accumulated by the employee choosing to
forego earned but unused sick leave; and CUNA Mutual earned its employees‟ loyalty
and service until retirement by offering the credit along with a discounted retiree health
insurance premium cost based on years of employment. Employees were incentivized to
work despite illness or injury even though the employee could have stayed home and still
received a day‟s pay for doing nothing. Furthermore, after an employee had accumulated
significant sick leave, the sick leave credit policy and subsidy of premium costs not only
increased employee productivity; it also served as a powerful tool that enabled CUNA
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4
Mutual to retain valued employees who might otherwise seek employment elsewhere and
lose the accumulated value of their earned but unused sick leave.
The promise of the sick leave credit was explicitly restated in documentation
generated at the time of each employees‟ retirement reciting the employee‟s accrued sick
leave credit and premium percentage subsidy; and which confirmed the individual
employee‟s sick leave credit balance would be applied to pay retiree health insurance
premiums “until [the fund] is exhausted.” (See: SA 70-73)(“election forms”).
Nonetheless, CUNA Mutual brazenly broke its promise by erasing the retirees‟ sick leave
credits and by eliminating the retirees‟ premium subsidies. That action resulted in CUNA
Mutual‟s realization of an increase in corporate income (SA 77, 79).2 However, CUNA
Mutual‟s gain at the expense of its retirees‟ loss was accomplished in a manner that
violated Plan language limiting the plan sponsor‟s right to amend the plan, which stated:
“No amendment of the Plan shall cause any part of the Plan to be used for, or diverted to
purposes other than for the exclusive benefit of the Participants or their dependents
covered by the Plan.” (SA 22).
Given the conflicting provisions of the retiree medical plan and the election
forms, the dissent recognized the strength of the promise that CUNA Mutual made to its
employees. Slip Op. at 12 (Hamilton, J., dissenting). Moreover, despite the availability of
relief under state law for what occurred here consistent with the doctrine of promissory
2 Only a portion of the $121 million gained by CUNA Mutual by that amendment is part of this
claim. The $121 million gain obviously included both the elimination of a liability for the funds
attributable to the sick leave credit and premium percentage subsidy, as well as other anticipated
future liability for retiree health insurance that had been on CUNA Mutual‟s books consistent
with FASB 106 – “Employers‟ Accounting for Postretirement Benefits Other than Pensions”
issued in December 1990 (available at http://www.fasb.org/pdf/fas106.pdf). Since this case was
dismissed at the pleading stage, CUNA Mutual‟s savings attributable solely to the elimination of
the sick leave credit is unknown absent discovery.
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5
estoppel,3 the majority found ERISA afforded Plaintiffs no claim upon which relief could
be obtained. The majority‟s failure to find an ERISA remedy, despite Amara, and this
Circuit‟s recognition of ERISA-based promissory estoppel claims according to Miller v.
Taylor Insulation Co., 39 F.3d 755, 758-59 (7th
Cir. 1994), is also contrary to Firestone’s
point that ERISA should not afford “less protection to employees and their beneficiaries
than they enjoyed before ERISA was enacted.” 489 U.S. at 114.
Further, while welfare benefits do not ordinarily vest, this Circuit has repeatedly
acknowledged that employers may create vested welfare benefits by contract. Slip Op. at
3-4. Despite the panel majority‟s ruling that Plaintiffs‟ benefits were unvested based on
plan language reserving the right to amend the plan terms, the dissent pointed out that
unfettered trump power given to such clauses “renders all promises of future benefits
essentially illusory, as if they were written with disappearing ink.” Slip Op. at 17
(Hamilton, J., dissenting). The dissent would thus have found even from the limited
record before the court since the case was dismissed pursuant to Fed.R.Civ.P. 12(b)(6),
that the relevant documentation was sufficient to “impl[y] a promise not to use the
reservation-of-rights clause to wipe out the value of the retiring employee‟s performance
– in the form of declining to use sick leave-but to use the value of that performance for
the benefit of the retiree.” Slip Op. at 19 (Hamilton, J., dissenting). Given that the
employees earned the sick leave which was tracked, the dissent wrote that CUNA
Mutual‟s “attempted use of the reservation-of-rights clause [is] even more misleading and
deceptive, and can distinguish this case from cases with more generic promises of future
benefits, if such a distinction is needed.” Slip Op. at 20 (Hamilton, J., dissenting). Judge
3 See, Schlosser v. Allis-Chalmers Corp., 271 N.W.2d 879, 889 (Wis. 1978); cited at Slip.Op.12
(Hamilton, J., dissenting)
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Hamilton further challenged the majority‟s willingness to allow the employer “to use the
reservation-of-rights clause to walk away from its promise and to keep the entire value of
the employees‟ performance made in reliance on that promise.” Slip Op. at 21
(Hamilton, J., dissenting).
Judge Hamilton twice urged this court to reconsider its ruling (Slip Op. at 14, 21),
suggesting several routes offered by other decisions issued both by this Circuit and other
Circuits that would mitigate the harsh result of the panel majority‟s ruling, fulfill
Congress‟ purpose, and provide Plaintiffs with a substantive remedy instead of words of
judicial sympathy expressed when employees‟ reasonably understandable expectations
are dashed. One possibility suggested by the dissent is to craft an equitable remedy that
recognizes the value of the Plaintiffs‟ labor. Another suggested approach would balance
the degree of deception from misleading communications against the reservation of rights
clause, consistent with the Third and Sixth Circuit opinions issued in Unisys and James.
And Amara offers several additional possible routes that would provide the Plaintiffs
with a remedy. To be sure, while one of ERISA‟s purposes is to encourage the formation
of benefit plans and give employers the flexibility they need to structure plans in
accordance with their business needs, Judge Hamilton decried protecting employers “to
the point that we bless institutionalized deception and defeat the reasonable expectations
and reliance interests of employees.” Slip Op. at 23 (Hamilton, J., dissenting).
ARGUMENT
I. THE PANEL DECISION IS INCONSISTENT BOTH WITH AMARA AND
WITH PRIOR CIRCUIT RULINGS
A sign of our times is that retiree health insurance benefit cases have appeared
with all too-frequent regularity before this court. Given the high cost of health care,
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particularly for older individuals who may not yet be Medicare-eligible but who have
significant health issues that make obtaining affordable health care an impossibility, the
promise of retiree healthcare is a powerful retention tool used by employers, given the
current state of health insurance in the United States leaving those with pre-existing
conditions effectively uninsurable.
So it is no surprise that nearly every broken promise has led to a lawsuit. Yet
most of the cases have been won by employers who have successfully played their trump
reservation-of-rights cards. Although the courts have repeatedly expressed concern and
sympathy for the employees‟ “understandable,” yet “unfortunate” belief that employer
promises were binding (See, e.g., Vallone v. CNA Financial Corp., 375 F.3d 623, 634 (7th
Cir. 2004)), few have done anything about it. That is surprising since most circuits,
including this one, hold that ERISA‟s fiduciary duties encompass a duty not to mislead
“when the fiduciary should know that the participant is laboring under a material
misunderstanding of plan terms and benefits.” Slip Op. at 22 (Hamilton, J.,
dissenting)(citing Kenseth v. Dean Health Plan Inc., 610 F.3d 452, 466-71 (7th
Cir.
2010)). If CUNA Mutual intended the reservation-of-rights clause to act as an absolute
trump to defeat its employees‟ reasonable expectations yet failed to inform the Plaintiffs,
a massive breach of fiduciary duty occurred here.
Although Plaintiffs primarily pled a claim seeking benefits pursuant to 29 U.S.C.
§ 1132(a)(1)(B), the Complaint also alleged a claim for breach of fiduciary duty and a
claim for promissory estoppel (SA 9, 12); and the prayer for relief encompasses the
catch-all equitable relief provided by 29 U.S.C. § 1132(a)(3). (SA 13-14). Thus, as in
CIGNA Corp. v. Amara, supra., the promissory estoppel claim may easily be reframed as
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one for equitable relief pursuant to 29 U.S.C. § 1132(a)(3). Plaintiffs unquestionably
meet the Amara requirement of proving actual harm – their sick leave credits and
premium subsidies evaporated with the stroke of a pen (or a keystroke and mouse click);
and Plaintiffs explicitly pled reasonable and detrimental reliance. SA 12.
Moreover, as in Amara, where the Court dramatically departed from prior
precedent and found deceptive employer communications actionable even though the
plan document itself was accurate, neither the document establishing the sick leave
credits (SA 66-67), nor the retirement elections (SA 70-73), which themselves are
deemed a part of the plan (SA 49), cautioned that accrued benefits could be eliminated.
Further, the panel majority failed to acknowledge the plan sponsor‟s power to amend was
not unfettered; it was limited by a provision stating that no amendment “shall cause any
part of the plan to be used for, or diverted to purposes other than for the exclusive benefit
of the Participants or their dependents covered under the Plan.” SA 22. Transforming a
key part of the plan‟s funding to a gain in corporate earnings is neither consistent with the
promise of how the sick leave credits would be used nor consistent with the Plan
requirement that any amendment must be for the exclusive benefit of the Participants.
The quoted “exclusive benefit” provision is vital since it follows the reservation-
of-rights language in the plan and clearly limits those rights. The amendment power is
restricted by a requirement that it be for the exclusive benefit of the retirees and their
dependents. Also critical is the inclusion of the term “participants” in the limiting
language. A “participant” is defined in the plan as an employee who has retired and
completed an election form (SA 25, 29). Thus, while CUNA Mutual remained free to
amend the plan in any way it saw fit as to non-participants, once an employee retired and
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became a participant, CUNA Mutual‟s amendment powers were constrained as to the
rights of those individuals. That argument is consistent with the Supreme Court‟s ruling
in Inter-Modal Rail Employees Association v. Atchison, Topeka and Santa Fe Railway
Co., 520 U.S. 510 (1997). Inter-Modal’s ruling that claims alleging interference with
benefits brought pursuant to 29 U.S.C. § 1140 encompassed welfare benefit claims also
weighed the balance between an employer‟s right to amend welfare benefit plans and
protection of promises made to employees. The Court found, “An employer may, of
course, retain the unfettered right to alter its promises, but to do so it must follow the
formal procedures set forth in the plan.” 520 U.S. at 516. Thus, by specifically limiting
CUNA Mutual‟s amendment powers, this case becomes distinguishable from Vallone
where there was no comparable limitation.
Finally, the exclusive benefit provision applies to amendments affecting any part
of the Plan. The Election Forms are a required part of the Plan. (SA 29). Although the
panel majority held the sick leave accounts were not plan assets under 29 U.S.C. §
1106(a)(1)(D), the exclusive benefit clause applies to any part of the plan and is not
limited to plan assets. Had CUNA Mutual intended the exclusive benefit provision of the
Plan to apply only to assets of the Plan, it would have used that draftsmanship. The
failure to do so; and the recitation in the election forms that the sick leave credits would
be applied to fund healthcare premiums “until exhausted,” completely contradicts the
notion the sick leave credits could be taken away before they were used up.
Consequently, the trump power of the reservation-of-rights clause is not unfettered.
However, even if this court does not read the plan in that manner, Amara still
offers three potential avenues for equitable relief: reformation of the Plan, estoppel, or
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surcharge. Of those three remedies, if plan reformation is eliminated, the remedy most
applicable to the Plaintiffs‟ situation is either estoppel or a surcharge to refund the sick
leave balances since CUNA Mutual plainly breached its fiduciary duty to inform
Plaintiffs it was holding a trump card that could erase the value of their earned but unused
sick leave.
In addition to, or as an alternative to invoking Amara’s remedies, as Judge
Hamilton suggested in his dissent, there is enough evidence to at least question whether
the Plaintiffs‟ rights were vested. In Rosetto v. Pabst Brewing Co., 217 F.3d 539 (7th
Cir.
2000), which raised the issue of whether promised retiree health benefits terminated with
the expiration of a collective bargaining agreement, the court engaged in an extensive
discussion of whether such benefits vest. The court explained:
Our presumption against vesting, it is important to emphasize, kicks in
only if all the court has to go on is silence. If there is some positive
indication of ambiguity, something to make you scratch your head (but the
"something" must be either language in the plan or contract itself or the
kind of objective evidence that can create a latent ambiguity under
principles of contract law, Murphy v. Keystone Steel & Wire Co., supra,
61 F.3d at 565), the presumption falls out. 217 F.3d at 544.
There is much here to raise a legitimate question as to whether Plaintiffs‟ rights
vested. As the dissent pointed out, “the relevant documents must be read together and
construed as a whole.” Slip Op. at 17 (Hamilton, J., dissenting)(citing Bland v. Fiatallis
North America, Inc., 401 F.3d 779, 783 (7th
Cir. 2005)). Because this court has
repeatedly ruled that plan language is read “‟in an ordinary and popular sense,‟ construed
as if by a „person of average intelligence and experience‟” (Id.)(internal citations
omitted)), the lower court‟s finding that Plaintiffs‟ confusion was “understandable” yet
“unfortunate” (App. 31) suggests reading the reservation-of-rights clause as an absolute
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trump was not easily understood by an average person.4
Thus, the latent ambiguity derived from surrounding circumstances discussed in
Rosetto, and in Bidlack v. Wheelabrator Corp., 992 F.2d 603 (7th
Cir. 1993), yet another
dispute over retiree health benefits, is evident from the Wermuth memo and the
retirement election forms promising the sick leave credits will be applied to pay retiree
health insurance premiums “until it [the sick leave credit balance] is exhausted” and only
caution “the premium is subject to change” (SA 71-72). Those plan documents imply a
“promise not to use the reservation-of-rights clause to wipe out the value of the retiring
employee‟s performance.” Slip Op. at 19 (Hamilton, J., dissenting).
One legally sound route to safeguard ERISA‟s fundamental purpose of protecting
employee benefits from abusive practices, yet maintain the distinction between pension
and welfare benefits which formed the bedrock of the panel majority opinion,5 is to adopt
the “weak vest rule” articulated by Judge Richard Cudahy in his concurring opinion in
Bidlack. Slip Op. at 22 (Hamilton, J., dissenting). Judge Richard Posner, writing for a
four judge plurality, adopted a “weak no-vest” rule. Under either view, though, extrinsic
evidence is admissible in cases of ambiguity to determine whether the benefits were
contractually vested. The “weak no-vest rule” requires a preponderance of the evidence
4 As the dissent pointed out, “employees cannot reasonably be expected to figure out that a
reservation-of-rights clause tucked into the plan‟s fine print means the employer‟s fingers are
crossed and the promise can be erased at the stroke of a pen.” Slip Op. at 23-24 (Hamilton, J.,
dissenting). 5 The panel majority expressed concern that “[i]f reliance interests block a reduction in welfare
benefits, then the distinction between pension and welfare benefits would be abolished.” (Slip Op.
at 10). However, while that general rule remains applicable, as demonstrated throughout this
petition, and as asserted in the dissent, the circumstances here involve much more than “reliance
interests” given the unique nature of the sick leave credits, and thus create an exceptional
circumstance that contractually vested the sick leave benefits.
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to establish vesting, while the “weak vest rule” presumes vesting unless there is proof
vesting did not exist. Bidlack, supra.
In Roth v. City of Glendale, 237 Wis. 2d 173, 614 NW 2d 467 (2000), a
Wisconsin Supreme Court ruling involving municipal employees suing to recover retiree
health benefits under a collective bargaining agreement that had expired, the court
adopted Judge Cudahy‟s “weak-vest” rule, creating a vesting presumption as a default
rule as “comport[ing] with „a more far-reaching understanding of the context in which
retiree benefits arise‟ and serves to fulfill the legitimate expectations of employees who
have bargained for these benefits.” 614 N.W.2d at 472 (citing Keffer v. H.K. Porter Co.,
Inc., 872 F.2d 60, 64 (4th
Cir. 1989)).
Regardless of whether a “weak no-vest rule” or a “weak vest rule” is used, the
Plaintiffs should prevail in this case. The terms of the Wermuth memo, the election
forms, and the “exclusive benefit” clause within the amendment provision of the Plan, all
establish that the value of the sick leave accounts vested upon retirement for purposes of
payment of health insurance premiums.
Therefore, whatever rights were reserved, that reservation “should not and need
not be interpreted to allow the employer to wipe out the value of those virtual individual
account balances built up over years, rendering the promise illusory after the other party
has performed.” Slip Op. at 21 (Hamilton, J., dissenting). Judge Hamilton explicitly
suggested the district court could craft an equitable remedy to give value for performance
rendered. Id. And as set forth above, Amara sets forth the scope of such remedies.
Accordingly, in view of the exceptional importance of the issue presented and the conflict
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13
between the panel majority opinion and Amara, as well as with other circuit opinions,
rehearing en banc to resolve the conflict is warranted.
II. THE PANEL DECISION CONFLICTS WITH OTHER CIRCUITS’
RULINGS
In addition to its inconsistency with Seventh Circuit holdings relating to the duty
to inform, the panel majority opinion conflicts with rulings issued by other circuits. For
example, in Unisys, supra., the Third Circuit reiterated its position that a reservation-of-
rights clause is not always an absolute trump card that can be used to revoke previously-
made promises of retiree health benefits. In Unisys, plaintiffs who participated in the
Burroughs Corporation medical plan were found to have been misled about the
irrevocability of their retiree health benefits. The court upheld the district court‟s finding
that the promise of specific retiree health benefits made at retirement, coupled with a
failure to advise that the benefits could be eliminated, constituted a breach of fiduciary
duty. Id. The Third Circuit also agreed with the district court‟s finding that a “temporal
aspect” was involved; and the failure to disclose the reservation of rights was inadequate
even if contained in the summary plan description since nothing about the reservation of
rights was presented at the time the employee was retiring. 579 F.3d at 231-32.
James, too, overruled a specific reservation-of-rights clause when employees
were not advised at retirement that the promises of lifetime healthcare were subject to
change. The court emphasized ERISA‟s “affirmative duty to inform when the trustee
knows that silence might be harmful." 305 F.3d at 455. (citation omitted). The Sixth
Circuit thoroughly agreed with an earlier ruling in the Unisys litigation (In Re Unisys
Corp. Retiree Med. Benefit "ERISA" Litig., 57 F.3d 1255, 1264 (3d Cir. 1995)) and
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14
aligned itself with the Third Circuit. The conflict between this Circuit and other Circuits
on this issue can only be resolved by bringing this Circuit into alignment through
rehearing.
III. THE PANEL DECISION UNDERMINES ERISA’S PURPOSE
The choice of when to retire is crucial for employees because the retirement
decision is usually irrevocable. A major factor involved in the decision of when to retire
is how the employee will obtain and pay for health insurance. Few employees will retire
without knowing that they have save sufficient funds to cover the anticipated cost of
available health insurance. That calculation is just as important to most retirees as
knowing whether their pensions plus accumulated savings are sufficient to fund their
living expenses.
As pointed out above, ERISA was enacted primarily for the protection of plan
participants and their beneficiaries. 29 U.S.C. § 1001(b). The panel majority decision
undermines Congress‟ purpose, frustrating employees‟ expectations about their
anticipated retirement expenses. The Supreme Court remarked in Varity Corp. v. Howe,
516 U.S. 489, 506 (1996), a retiree health benefit case, that ERISA‟s fiduciary duties
prohibit employers from “participat[ing] knowingly and significantly in deceiving a
plan's beneficiaries in order to save the employer money at the beneficiaries' expense.”
Thus, depriving the Plaintiffs of their promised and expected retiree healthcare funding
earned over the course of their careers was contrary to ERISA‟s overriding purpose and
requires a rehearing of this matter.
CONCLUSION
For the reasons presented above, Plaintiffs-Appellants urge this Court to rehear
Case: 10-1558 Document: 22 Filed: 09/19/2011 Pages: 22
15
this matter and suggest that the full Court of Appeals rehear this matter en banc and
either substitute the dissenting opinion for the majority ruling or issue a new ruling
consistent with the dissent authored by Judge David Hamilton.
Respectfully submitted,
__________________________________
Mark D. DeBofsky James A. Olson
Daley, DeBofsky & Bryant Dixon R. Gahnz
55 W. Monroe St., Suite 2440 Lawton & Cates, S.C.
Chicago, Illinois 60603 10 East Doty Street, Suite 400
(312) 372-5200 P.O. Box 2965
Madison, WI 53701-2965
608-282-6200
Attorneys for Plaintiffs-Appellants
Case: 10-1558 Document: 22 Filed: 09/19/2011 Pages: 22
16
No. 10-1558
In The United States Court Of Appeals
For The Seventh Circuit
JOHN SULLIVAN, WILLIAM PHILLIPS, )
KAREN WITHEE, PAUL SPECHT, and ) Appeal from the United States District
THOMAS OLSON, Individually and as ) Court for the Western District of
Class Representatives, ) Wisconsin, Honorable Barbara B. Crabb,
) Judge Presiding
Plaintiffs-Appellants )
)
vi. ) Case No. 09cv455
)
CUNA MUTUAL INSURANCE )
SOCIETY, and CUNA MUTUAL )
GROUP MEDICAL CARE PLAN )
FOR RETIREES, )
)
Defendants-Appellees. )
CERTIFICATE OF SERVICE
________________________________________________________________________
TO: Devon R. Baumbach
Tom Crone
Melli Law, S.C.
10 East Doty Street, Suite 900
PO Box 1664
Madison, WI 53701-1664
Alan S. Gilbert
T. David Cowart
Jeffery S. Davis
Sonnenschein Nath & Rosenthal, LLP
233 South Wacker Drive, Suite 7800
Chicago, IL 60606-6404
The undersigned attorney certifies that he served a copy of the foregoing
PLAINTIFF-APPELLANT‟S PETITION FOR REHEARING AND SUGGESTION OF
REHEARING EN BANC upon the above named attorney by placing a copy, addressed to
him, proper first class postage affixed, in the U.S. Mailbox at 55 W. Monroe St. Chicago,
Case: 10-1558 Document: 22 Filed: 09/19/2011 Pages: 22
17
Illinois 60603, before 5:00 p.m. on September 19, 2011; and by service through the
CM/ECF system maintained by the Clerk of the United States Court of Appeals for the
Seventh Circuit.
DATED: September 19, 2011
Chicago, Illinois
__
DALEY, DE BOFSKY & BRYANT Mark D. DeBofsky
55 West Monroe St., Suite 2440 Attorney for Plaintiffs - Appellants
Chicago, Illinois 60603
mdebofsky@ddbchicago.com
Case: 10-1558 Document: 22 Filed: 09/19/2011 Pages: 22