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SUPREME COURT OF THE UNITED STATES
_________________
No. 13–1010
_________________
M&G POLYMERS USA, LLC, et al., PETITIONERS
v.HOBERT FREEL TACKETT et al.
on writ of certiorari to the united states court of appeals for
the sixth circuit
[January 26, 2015]
Justice Thomas delivered the opinion of the Court.
This case arises out of a disagreement between a group of
retired employees and their former employer about the meaning of
certain expired collective-bargaining agreements. The retirees (and
their former union) claim that these agreements created a right to
lifetime contribution-free health care benefits for retirees, their
surviving spouses, and their dependents. The employer, for its
part, claims that those provisions terminated when the agreements
expired. The United States Court of Appeals for the Sixth Circuit
sided with the retirees, relying on its conclusion in
International Union, United Auto, Aerospace, & Agricultural
Implement Workers of Am. v.
Yard-Man, Inc., 716
F. 2d 1476, 1479 (1983), that retiree health care benefits are
unlikely to be left up to future negotiations. We granted
certiorari and now conclude that such reasoning is incompatible
with ordinary principles of contract law. We therefore vacate the
judgment of the Court of Appeals and remand for it to apply
ordinary principles of contract law in the first instance.
I
A
Respondents Hobert Freel Tackett, Woodrow K. Pyles, and Harlan
B. Conley worked at (and retired from) the Point Pleasant Polyester
Plant in Apple Grove, West Virginia (hereinafter referred to as the
Plant). During their employment, respondent United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and
Service Workers International Union, AFL-CIO-CLC, or its
predecessor unions (hereinafter referred to as the Union),
represented them in collective bargaining. Tackett and Pyles
retired in 1996, and Conley retired in 1998. They represent a class
of retired employees from the Plant, along with their surviving
spouses and other dependents. Petitioner M&G Polymers USA, LLC,
is the current owner of the Plant.
When M&G purchased the Plant in 2000, it entered a master
collective-bargaining agreement and a Pension, Insurance, and
Service Award Agreement (P & I agreement) with the Union,
generally similar to agreements the Union had negotiated with
M&G’s predecessor. The P & I agreement provided for retiree
health care benefits as follows:
“Employees who retire on or after January 1, 1996 and who are
eligible for and receiving a monthly pension under the 1993 Pension
Plan . . . whose full years of attained age and full
years of attained continuous service . . . at the time of
retirement equals 95 or more points will receive a full Company
contribution towards the cost of [health care] benefits described
in this Exhibit B–1 . . . . Employees who have less
than 95 points at the time of retirement will receive a reduced
Company contribution. The Company contribution will be reduced by
2% for every point less than 95. Employees will be required to pay
the balance of the health care contribution, as estimated by the
Company annually in advance, for the [health care] benefits
described in this Exhibit B–1. Failure to pay the required medical
contribution will result in cancellation of coverage.” App.
415–416.
Exhibit B–1, which described the health care benefits at issue,
opened with the following durational clause: “Effective January 1,
1998, and for the duration of this Agreement thereafter, the
Employer will provide the following program of hospital benefits,
hospital-medical benefits, surgical benefits and prescription drug
benefits for eligible employees and their dependents
. . . . ”
Id., at 377–378 (emphasis deleted).
The P & I agreement provided for renegotiation of its
terms in three years.[
1]
B
In December 2006, M&G announced that it would begin
requiring retirees to contribute to the cost of their health care
benefits. Respondent retirees, on behalf of themselves and others
similarly situated, sued M&G and re-lated entities, alleging
that the decision to require these contributions breached both the
collective-bargaining agreement and the P & I agreement, in
violation of §301 of the Labor Management Relations Act, 1947
(LMRA) and §502(a)(1)(B) of the Employee Retirement Income Security
Act of 1974 (ERISA),88Stat.891.[
2] Specifically,
the retirees alleged that M&G had promised to provide lifetime
contribution-free health care benefits for them, their surviving
spouses, and their dependents. They pointed to the language in the
2000 P & I agreement providing that employees with a certain
level of seniority “will receive a full Company contribution
towards the cost of [health care] benefits described in
. . . Exhibit B–1.” The retirees alleged that, with this
promise, M&G had created a vested right to such benefits that
continued beyond the expiration of the 2000 P & I
agreement.
The District Court dismissed the complaint for failure to state
a claim. 523 F. Supp. 2d 684, 696 (SD Ohio 2007). It concluded
that the cited language unambiguously did not create a vested right
to retiree benefits.
The Court of Appeals reversed based on the reasoning of its
earlier decision in
Yard-Man. 561 F. 3d 478 (CA6 2009)
(
Tackett I).
Yard-Man involved a similar claim that
an employer had breached a collective-bargaining agreement when it
terminated retiree benefits. 716 F. 2d, at 1478. Although the
court found the text of the provision in that case ambiguous, it
relied on the “context” of labor negotiations to resolve that
ambiguity in favor of the retirees’ interpretation.
Id., at
1482. Specifically, the court inferred that parties to collective
bargaining would intend retiree benefits to vest for life because
such benefits are “not mandatory” or required to be included in
collective-bargaining agreements, are “typically understood as a
form of delayed compensation or reward for past services,” and are
keyed to the acquisition of retirement status.
Ibid. The
court concluded that these inferences “outweigh[ed] any contrary
implications [about the termination of retiree benefits] derived
from” general termination clauses.
Id., at 1483.
Applying the
Yard-Man inferences on review of the
District Court’s dismissal of the action, the Court of Appeals
concluded that the retirees had stated a plausible claim.
Tackett I, 561 F. 3d, at 490. “Keeping in mind the
context of the labor-management negotiations identified in
Yard-Man,” the court found “it unlikely that [the Union]
would agree to language that ensures its members a ‘full Company
contribution,’ if the company could unilaterally change the level
of contribution.”
Ibid. The court construed the language
about “employees” contributing to their health care premiums as
limited to employees who had not attained the requisite seniority
points to be entitled to a full company contribution.
Ibid.
And it discerned an intent to vest lifetime contribution-free
health care benefits from provisions tying eligibility for health
care benefits to eligibility for pension benefits.
Id., at
490–491.
On remand, the District Court conducted a bench trial and ruled
in favor of the retirees. It declined to revisit the question
whether the P & I agreement created a vested right to
retiree benefits, concluding that the Court of Appeals had
definitively resolved that issue. It then issued a permanent
injunction ordering M&G to reinstate contribution-free health
care benefits for the individual respondents and similarly situated
retirees. 853 F. Supp. 2d 697 (SD Ohio 2012).
The Court of Appeals affirmed, concluding that, al-though the
District Court had erred in treating
Tackett I as a
conclusive resolution of the meaning of the P & I
agreement, it had not erred in “presum[ing]” that, “in the absence
of extrinsic evidence to the contrary, the agreements indicated an
intent to vest lifetime contribution-free benefits.” 733 F. 3d
589, 600 (CA6 2013) (
Tackett II). And because the District
Court had concluded that the proffered extrinsic evidence was
inapplicable, it had not clearly erred in finding that the
agreement created those vested rights.
We granted certiorari, 572 U. S. ___ (2014), and now vacate
and remand.
II
This case is about the interpretation of collective-bargaining
agreements that define rights to welfare benefits plans. The LMRA
grants federal courts jurisdiction to resolve disputes between
employers and labor unions about collective-bargaining
agreements.29 U. S. C. §185. When collective-bargaining
agreements create pension or welfare benefits plans, those plans
are subject to rules established in ERISA. ERISA defines pension
plans as plans, funds, or programs that “provid[e] retirement
income to employees” or that “resul[t] in a deferral of income.”
§1002(2)(A). It defines welfare benefits plans as plans, funds, or
programs established or maintained to provide participants with
additional benefits, such as life insurance and disability
coverage. §1002(1).
ERISA treats these two types of plans differently. Although
ERISA imposes elaborate minimum funding and vesting standards for
pension plans, §§1053, 1082, 1083, 1084, it explicitly exempts
welfare benefits plans from those rules, §§1051(1), 1081(a)(1).
Welfare benefits plans must be “established and maintained pursuant
to a written instrument,” §1102(a)(1), but “[e]mployers or other
plan sponsors are generally free under ERISA, for any reason at any
time, to adopt, modify, or terminate welfare plans,”
Curtiss-Wright Corp. v.
Schoonejongen,514 U. S.
73,78 (1995). As we have previously recognized, “[E]mployers have
large leeway to design disability and other welfare plans as they
see fit.”
Black & Decker Dis-ability Plan v.
Nord,538 U. S. 822,833 (2003). And, we have observed,
the rule that contractual “provisions ordinarily should be enforced
as written is especially appropriate when enforcing an ERISA
[welfare benefits] plan.”
Heimeshoff v.
Hartford Life
& Accident Ins. Co., 571 U. S. ___, ___ (2013) (slip
op., at 7). That is because the “focus on the written terms of the
plan is the linchpin of a system that is not so complex that
administrative costs, or litigation expenses, unduly discourage
employers from offering [welfare benefits] plans in the first
place.”
Id., at ___ (slip op., at 8) (internal quotation
marks, brackets, and citation omitted).
We interpret collective-bargaining agreements, including those
establishing ERISA plans, according to ordinary principles of
contract law, at least when those principles are not inconsistent
with federal labor policy. See
Textile Workers v.
Lincoln
Mills of Ala.,353 U. S. 448–457 (1957). “In this endeavor,
as with any other contract, the parties’ intentions control.”
Stolt-Nielsen S. A. v.
AnimalFeeds Int’l
Corp.,559 U. S. 662,682 (2010) (internal quotation marks
omitted). “Where the words of a contract in writing are clear and
unambiguous, its meaning is to be ascertained in accordance with
its plainly expressed intent.” 11 R. Lord, Williston on Contracts
§30:6, p. 108 (4th ed. 2012) (Williston) (internal quotation marks
omitted). In this case, the Court of Appeals applied the
Yard-Man inferences to conclude that, in the absence of
extrinsic evidence to the contrary, the provisions of the contract
indicated an intent to vest retirees with lifetime benefits.
Tackett II, 733 F. 3d, at 599–600. As we now explain,
those inferences conflict with ordinary principles of contract
law.
III
A
1
The Court of Appeals has long insisted that its
Yard-Man
inferences are drawn from ordinary contract law. In
Yard-Man
itself, the court purported to apply “traditional rules for
contractual interpretation.” 716 F. 2d, at 1479. The court
first concluded that the provision governing retiree insurance
benefits—which stated only that the employer “will provide” such
benefits—was ambiguous as to the duration of those benefits.
Id., at 1480. To resolve that ambiguity, it looked to other
provisions of the agreement. The agreement included provisions for
terminating active employees’ insurance benefits in the case of
layoffs and for terminating benefits for a retiree’s spouse and
dependents in case of the retiree’s death before the expiration of
the collective-bargaining agreement, but no provision specifically
addressed the duration of retiree health care benefits.
Id.,
at 1481–1482. From the existence of these termination provisions
and the absence of a termination provision specifically addressing
retiree benefits, the court inferred an intent to vest those
retiree benefits for life.
The court then purported to apply the rule that contracts should
be interpreted to avoid illusory promises. It noted that the
retiree insurance provisions “contain[ed] a promise that the
company will pay an early retiree’s insurance upon such retiree
reaching age 65 but that the retiree must bear the cost of company
insurance until that time.”
Id., at 1481. Employees could
retire at age 55, but the agreement containing this promise applied
only for a 3-year term.
Ibid. Thus, retirees between the
ages of 55 and 62 would not turn 65 and become eligible for the
company contribution before the 3-year agreement expired. In light
of this fact, the court reasoned that the promise would be
“completely illusory for many early retirees under age 62” if the
retiree benefits terminated when the contract expired.
Ibid.
Finally, the court turned to “the context” of labor
negotiations.
Id., at 1482. It observed that “[b]enefits for
retirees are . . . not mandatory subjects of collective
bargaining” and that “employees are presumably aware that the union
owes no obligation to bargain for continued benefits for retirees.”
Ibid. Based on these observations, the court concluded that
“it is unlikely that such benefits . . . would be
left to the contingencies of future negotiations.”
Ibid. It
also asserted that “retiree benefits are in a sense ‘status’
benefits which, as such, carry with them an inference that they
continue so long as the prerequisite status is maintained.”
Ibid.
Although the contract included a general durational
clause—meaning that the contract itself would expire at a set
time—the court concluded that these contextual clues “outweigh[ed]
any contrary implications derived from a routine duration clause.”
Id., at 1483.
2
Two years after
Yard-Man, the court took this analysis
even further. In a dispute between retirees and a steel company
over retiree health insurance benefits, it construed the language
“will continue to provide at its expense, supplemental medicare and
major medical benefits for Pensioners aged 65 and over” to
“
unambiguously confe[r]” lifetime benefits.
Policy v.
Powell Pressed Steel Co., 770 F. 2d 609, 615 (CA6 1985)
(emphasis added). Yet it had interpreted similar language—“will
provide insurance benefits equal to the active group”—to be
ambiguous in
Yard-Man. The court refused to give any
weight to provisions that supported a contrary construction—namely,
one establishing a fund to pay pension, but not welfare, benefits,
and another providing for the continuation of pension, but not
welfare, benefits after the agreement expired.
Policy, 770
F. 2d, at 615–616. According to the court, a contrary
interpretation “would render the Company’s promise [of benefits for
retirees aged 65 and over] in substantial part nugatory and
illusory” to retirees who were 62 or younger when the 3-year
agreement was signed.
Ibid. And it faulted the District
Court for failing “to give effect” to
Yard-Man’s admonition
“that retiree benefits normally . . . are interminable.”
770 F. 2d, at 616.
The Court of Appeals has continued to extend the reasoning of
Yard-Man. Relying on
Yard-Man’s statement that
context considerations outweigh the effect of a general termination
clause, it has concluded that, “ ‘[a]bsent specific durational
language referring to retiree benefits themselves,’ a general
durational clause
says nothing about the vesting of retiree
benefits.”
Noe v.
PolyOne Corp., 520 F. 3d 548,
555 (CA6 2008) (emphasis added). It has also held that a provision
that “ties eligibility for retirement-health benefits to
eligibility for a pension . . . [leaves] little room for debate
that retirees’ health benefits ves[t] upon retirement.”
Id.,
at 558 (internal quotation marks omitted). Commenting on these
extensions of
Yard-Man, the court has acknowledged that
“there is a reasonable argument to be made that, while th[e] court
has repeatedly cautioned that
Yard-Man does not create a
presumption of vesting, [it] ha[s] gone on to apply just such a
presumption.”
Cole v.
ArvinMeritor, Inc., 549
F. 3d 1064, 1074 (CA6 2008).
B
We disagree with the Court of Appeals’ assessment that the
inferences applied in
Yard-Man and its progeny represent
ordinary principles of contract law.
As an initial matter,
Yard-Man violates ordinary contract
principles by placing a thumb on the scale in favor of vested
retiree benefits in all collective-bargaining agreements. That rule
has no basis in ordinary principles of contract law. And it
distorts the attempt “to ascertain the intention of
the
parties.” 11 Williston §30:2, at 18 (emphasis added); see also
Stolt-Nielsen, 559 U. S., at 682.
Yard-Man’s
assessment of likely behavior in collective bargaining is too
speculative and too far removed from the context of any particular
contract to be useful in discerning the parties’ intention.
And the Court of Appeals derived its assessment of likely
behavior not from record evidence, but instead from its own
suppositions about the intentions of employees, unions, and
employers negotiating retiree benefits. See
Yard-Man, 716
F. 2d, at 1482. For example, it asserted, without any
foundation, that, “when . . . parties contract for benefits which
accrue upon achievement of retiree status, there is an inference
that the parties likely in-tended those benefits to continue as
long as the benefi-ciary remains a retiree.”
Ibid.; see also
ibid. (“[I]t is unlikely that [retiree] benefits
. . . would be left to the contingencies of future
negotiations”). Although a court may look to known customs or
usages in a particular industry to determine the meaning of a
contract, the parties must prove those customs or usages using
affirmative evidentiary support in a given case. 12 Williston
§34:3; accord,
Robinson v.
United States, 13 Wall.
363, 366 (1872);
Oelricks v.
Ford, 23 How. 49, 61–62
(1860).
Yard-Man relied on no record evidence indicating
that employers and unions in that industry customarily vest retiree
benefits. Worse, the Court of Appeals has taken the inferences in
Yard-Man and applied them indiscriminately across
industries. See
, e.g., Cole,
supra, at 1074
(automobile);
Armistead v.
Vernitron Corp., 944
F. 2d 1287, 1297 (CA6 1991) (electronics);
Policy,
supra, at 618 (steel).
Because the Court of Appeals did not ground its
Yard-Man
inferences in any record evidence, it is unsurprising that the
inferences rest on a shaky factual foundation. For example,
Yard-Man relied in part on the premise that retiree health
care benefits are not subjects of mandatory collective bargaining.
Parties, however, can and do voluntarily agree to make retiree
benefits a subject of mandatory collective bargaining. Indeed, the
employer and union in this case entered such an agreement in 2001.
App. 435–436.
Yard-Man also relied on the premise that
re-tiree benefits are a form of deferred compensation, but that
characterization is contrary to Congress’ determi-nation otherwise.
In ERISA, Congress specifically defined plans that “resul[t] in a
deferral of income by employ-ees” as pension plans,
§1002(2)(A)(ii), and plans that offer medical benefits as welfare
plans, §1002(1)(A). Thus, retiree health care benefits are not a
form of deferred compensation.
Further compounding this error, the Court of Appeals has refused
to apply general durational clauses to provisions governing retiree
benefits. Having inferred that parties would not leave retiree
benefits to the contingencies of future negotiations, and that
retiree benefits generally last as long as the recipient remains a
retiree, the court in
Yard-Man explicitly concluded that
these inferences “outweigh[ed] any contrary implications derived
from a routine duration clause terminating the agreement
generally.” 716 F. 2d
, at 1482–1483. The court’s
subsequent decisions went even further, requiring a contract to
include a specific durational clause for retiree health care
benefits to prevent vesting.
E.g., Noe,
supra, at
555. These decisions distort the text of the agreement and conflict
with the principle of contract law that the written agreement is
presumed to encompass the whole agreement of the parties. See 1 W.
Story, Law of Contracts §780 (M. Bigelow ed., 5th ed. 1874); see
also 11 Williston §31:5.
Perhaps tugged by these inferences, the Court of Appeals
misapplied other traditional principles of contract law, including
the illusory promises doctrine. That doctrine instructs courts to
avoid constructions of contracts that would render promises
illusory because such promises cannot serve as consideration for a
contract. See 3Williston §7:7 (4th ed. 2008). But the Court of
Appeals construed provisions that admittedly benefited some class
of retirees as “illusory” merely because they did not equally
benefit
all retirees. See
Yard-Man,
supra, at
1480–1481. That interpretation is a contradiction in terms—a
promise that is “partly
” illusory is by definition not
illusory. If it benefits some class of retirees, then it may
serveas consideration for the union’s promises. And the court’s
interpretation is particularly inappropriate in the context of
collective-bargaining agreements, which are negotiated on behalf of
a broad category of individuals and consequently will often include
provisions inapplicable to some category of employees.
The Court of Appeals also failed even to consider the
traditional principle that courts should not construe ambiguous
writings to create lifetime promises. See 3 A. Corbin, Corbin on
Contracts §553, p. 216 (1960) (explaining that contracts that are
silent as to their duration will ordinarily be treated not as
“operative in perpetuity” but as “operative for a reasonable time”
(internal quotation marks omitted)). The court recognized that
“traditional rules of contractual interpretation require a clear
manifestation of intent before conferring a benefit or obligation,”
but asserted that “the duration of the benefit once clearly
conferred is [not] subject to this stricture.”
Yard-Man,
supra, at 1481, n. 2. In stark contrast to this
assertion, however, the court later applied that very stricture to
noncollectively bargained contracts offering retiree benefits. See
Sprague v.
General Motors Corp., 133 F. 3d 388,
400 (CA6 1998) (“To vest benefits is to render them forever
unalterable. Because vesting of welfare plan benefits is not
required by law, an employer’s commitment to vest such benefits is
not to be inferred lightly; the intent to vest must be found in the
plan documents and must be stated in clear and express language”
(internal quotation marks omitted)). The different treatment of
these two types of employment contracts only underscores
Yard-Man’s deviation from ordinary principles of contract
law.
Similarly, the Court of Appeals failed to consider the
traditional principle that “contractual obligations will cease, in
the ordinary course, upon termination of the bargaining agreement.”
Litton Financial Printing Div., Litton Business Systems,
Inc. v.
NLRB,501 U. S. 190,207 (1991). That
principle does not preclude the conclusion that the parties
intended to vest lifetime benefits for retirees. Indeed, we have
already recognized that “a collective-bargaining agreement [may]
provid[e] in explicit terms that certain benefits continue after
the agreement’s expiration.”
Ibid. But when a contract is
silent as to the duration of retiree benefits, a court may not
infer that the parties intended those benefits to vest for
life.
C
There is no doubt that
Yard-Man and its progeny af-fected
the outcome here. As in its previous decisions, the Court of
Appeals here cited the “context of . . . labor-management
negotiations” and reasoned that the Union likely would not have
agreed to language ensuring its members a “full Company
contribution” if the company could change the level of that
contribution.
Tackett I, 561 F. 3d, at 490 (internal
quotation marks omitted). It similarly concluded that the tying of
eligibility for health care benefits to receipt of pension benefits
suggested an intent to vest health care benefits.
Ibid. And
it framed its analysis from beginning to end in light of the
principles it announced in
Yard-Man and its progeny. See 561
F. 3d, at 489; see also
Tackett II, 733 F. 3d, at
599–600.
We reject the
Yard-Man inferences as inconsistent with
ordinary principles of contract law. But because “[t]his Court is
one of final review, not of first view,”
Ford Motor Co. v.
United States, 571 U. S. ___, ___ (2013) (
per
curiam) (slip op., at 2) (internal quotation marks omitted),
the Court of Appeals should be the first to review the agreements
at issue under the correct legal principles. We vacate the judgment
of the Court of Appeals and remand the case for that court to apply
ordinary principles of contract law in the first instance.
It is so ordered.
