Workers Lose Benefits Case

US District Judge Gerald Rosen of the Eastern District of Michigan threw out the retirees’ contention that their employer’s plan was ambiguous because it both guaranteed lifetime benefits and reserved the right for the company to change the plan.

Rosen said a 1998 decision from the US Sixth Circuit Court of Appeals found that no such ambiguity exists in an ERISA plan with a lifetime benefits promise and a clause allowing the company to impose benefit changes.

Rosen rejected the workers’ claim that they had a vested right to the benefits and that their bankrupt company and its predecessor violated the plan by requiring workers to pay a part of their health coverage costs.

Case Background

The plaintiff employees worked for Fruehauf Corporation and retired before July 14, 1989. According to the court, Fruehauf was once one of the world’s largest manufacturers of truck trailers and shipping containers.

On July 14, 1989, Fruehauf sold its trailer operations to a subsidiary of Terex Corp. The company was then renamed Fruehauf Trailer Corp. (FTC). The former Fruehauf Corp. then changed its corporate name to K-H Corp. Under the sale agreement, FTC assumed all debts, liabilities, and obligations of K-H Corp.

Before the sale, Fruehauf had a retiree medical benefit plan that provided for free medical coverage for Fruehauf retirees.

After the sale, FTC notified Fruehauf retirees that effective January 1, 1990, each retiree would be required to contribute to the cost of the medical coverage.

Objection

Seven retirees objected to FTC’s decision and filed a lawsuit against FTC on June 15, 1994. However, before the case was resolved, FTC filed for Chapter 11 bankruptcy. The case was then closed.

Because of the company’s bankruptcy, FTC notified retirees in 1997 that it would cease providing them with medical insurance coverage. K-H Corp. then sent retirees a letter advising them that K-H was FTC’s successor and would continue to provide them with medical insurance coverage.

The seven retirees then filed a second lawsuit, this time naming K-H as defendant and asserting, just as they had in the first lawsuit, that K-H had violated the terms of the retiree medical benefit plan by requiring retirees to pay a portion of the plan’s premiums.

In particular, the retirees asserted a claim for benefits under ERISA’s civil enforcement provision and further claimed that K-H breached its ERISA fiduciary duties.

Time Up

Granting K-H Corp.’s request that the second suit be thrown out, Rosen first found that both the retirees’ claim for benefits and the retirees’ fiduciary breach claims were filed after ERISA’s three-year time limit

Even if the retirees’ claims had been timely, the retirees still lost on the merits of their claims, the court said. The Sixth Circuit’s decision found that the retirees in the current case were prohibited from relying on their employer’s oral misrepresentations promising their benefits would be free for life.

Because the summary plan description issued to Fruehauf retirees unambiguously reserved to Fruehauf the right to amend or eliminate the plan, the retirees can’t challenge the imposition of health-care fees, the court found.

The case is Armbruster v. K-H Corp., E.D. Mich., 97-CV-75792-DT, No. 6/17/02.