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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.â€
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
. . . . â€
Id., at 377–378 (emphasis deleted). The
PÂ &Â 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 fromâ€
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.â€
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 PÂ &Â 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
PÂ &Â 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,â€
§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,â€
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.â€
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.â€
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.â€
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.â€
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.â€
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.â€
Ibid. Based on
these observations, the court concluded that “it
is unlikely that such benefits
. . . would be left to the
contingencies of future negotiations.â€
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.â€
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.â€
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]â€
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
groupâ€â€”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.â€
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.â€
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.â€
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.â€
Ibid.; see also
ibid.
(“[I]t is unlikely that [retiree] benefits
. . . would be left to the contingencies of
future negotiationsâ€). 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 “illusoryâ€
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.â€
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.â€
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.â€
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,â€
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.