Supreme Court Rejects Yard-Man: Ordinary Contract Principles Apply When Interpreting Retiree Medical Promises

The Supreme Court has unanimously vacated a Sixth Circuit ruling that a collective bargaining agreement (CBA) vested retirees with lifetime medical benefits. M&G Polymers USA, LLC v. Tackett, No. 13-1010, 2015 U.S. LEXIS 759 (Jan. 26, 2015). In so doing, the Supreme Court rejected the holding in International Union, United Automobile, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., 716 F. 2d 1476, 1482 (6th Cir. 1983), that courts could infer that retiree medical benefits vested for life because they were tied to eligibility for pension benefits and were "typically understood as a form of delayed compensation or reward for past services." According to the Supreme Court, the Sixth Circuit's "Yard-Man inference" was incompatible with ordinary principles of contract law that apply when interpreting CBAs. After citing a number of proper contract principles that might apply, the Court remanded M&G to the Sixth Circuit "for that court to apply ordinary principles of contract law in the first instance." 2015 U.S. LEXIS 759 at *25.

Retirees' Claim that M&G Promised Lifetime Retiree Medical Benefits

M&G's 2000 CBA with its union employees provided that certain retirees, along with surviving spouses and dependents, would "receive a full Company contribution towards the cost of [healthcare] benefits," that such benefits would be provided "for the duration of [the] Agreement" and that the CBA would be subject to renegotiation in three years.

After the CBA expired, M&G required retirees to contribute to the cost of their healthcare benefits. Various retirees sued, claiming that the CBA created a vested right to lifetime, contribution-free healthcare benefits. The district court dismissed the suit for failure to state a claim, but the Sixth Circuit reversed and remanded, on the reasoning of Yard-Man.

On remand, the district court conducted a bench trial and ruled for the retirees, concluding that the Court of Appeals had definitely resolved that the CBA created a vested right to retiree medical benefits. The Sixth Circuit affirmed, ruling that the district court properly presumed that "in the absence of extrinsic evidence to the contrary, the agreements [the 2000 CBA and its predecessors] indicated an intent to vest lifetime contribution-free benefits." 733 F.3d 589, 600 (6th Cir. 2013).

Supreme Court Rejects "Yard-Man Presumption" and Identifies Relevant Contract Principles

The outcome of M&G in the Supreme Court was forecast...