In The United States Court of Appeals For The Seventh Circuit · PDF fileNo. 10-1558 In The...

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

Case: 10-1558 Document: 22 Filed: 09/19/2011 Pages: 22

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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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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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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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


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).


2

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


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


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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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)


6

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,


7

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


8

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


9

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


10

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


11

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.


12

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


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


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


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


608-282-6200

Attorneys for Plaintiffs-Appellants


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


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,


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

[email protected]


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