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Kendzierski v. Macomb County

Supreme Court of Michigan

May 30, 2019

RITA KENDZIERSKI, BONNIE HAINES, GREG DENNIS, LOUISE BERTOLINI, JOHN BARKER, JAMES COWAN, VINCENT POWIERSKI, ROBERT STANLEY, ALAN MOROSCHAN, and GAER GUERBER, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellees,
v.
MACOMB COUNTY, Defendant-Appellant.

          Argued on application for leave to appeal November 19, 2018.

          Chief Justice: Bridget M. McCormack, Chief Justice Pro Tem: David F. Viviano, Justices: Stephen J. Markman, Brian K. Zahra, Richard H. Bernstein, Elizabeth T. Clement, Megan K. Cavanagh.

         Rita Kendzierski and others filed a class action in the Macomb Circuit Court against Macomb County, seeking injunctive relief and monetary damages after defendant made changes to retiree healthcare benefits; plaintiffs were retired unionized county employees who had worked for defendant under various collective-bargaining agreements (CBAs) dating back to 1989. Each CBA provided, in materially similar terms, that defendant would provide retirees with specific medical coverage if certain conditions were met and that (1) medical coverage would cease upon the retiree's death or continue for the retiree's spouse after the retiree's death if the retiree had made a spousal election (the surviving-spouse provision), (2) retirees had to enroll in Medicare upon reaching 65 years of age (the supplemental-care provision), and (3) coverage would be temporarily suspended if a retiree became gainfully employed (the subsequent-employment provision). Each CBA also contained a general three-year durational clause-that is, each CBA was in effect for a three-year term. In 2009 and 2010, when the 2008-2010 CBAs were in effect, defendant unilaterally altered plaintiffs' healthcare benefits; plaintiffs claimed that the changes increased the cost of prescription copays, changed deductible amounts, and reduced plan options. The parties filed competing motions for summary disposition regarding whether defendant's changes to the healthcare benefits were allowed under the CBAs, and plaintiffs also requested a permanent injunction enjoining further changes and requiring defendant to return the benefits to the status quo ante. The court, Diane M. Druzinski, J., granted defendant's motion in part, concluding that while plaintiffs were entitled to lifetime healthcare benefits under the agreements, defendant could make reasonable modifications to those benefits. The Court of Appeals (Fort Hood, P.J., and Jansen and Hoekstra, JJ.) affirmed in part and reversed in part, concluding that plaintiffs were entitled to lifetime healthcare benefits but that those benefits could not be modified without plaintiffs' consent. 319 Mich.App. 278 (2017). The Supreme Court ordered and heard oral argument on whether to grant the city's application for leave to appeal or take other action. 501 Mich. 966 (2018).

         In an opinion by Justice Markman, joined by Justices Zahra, Viviano, and Clement, the Supreme Court held:

         Because the provisions related to retiree healthcare benefits were not ambiguous, extrinsic evidence should not have been reviewed to interpret the CBAs' terms. While a CBA may provide that certain benefits continue after the agreement's expiration, when a contract is silent regarding the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life. The CBAs at issue here contained a general three-year durational clause, and no provision specified that the disputed benefits were subject to a different duration. Accordingly, the CBAs did not grant plaintiffs a vested right to lifetime and unalterable healthcare benefits, and the promise of retirement healthcare benefits expired at the end of the three-year terms of those agreements.

         1. When interpreting a contract, the goal is to give effect to the intent of the parties as determined by the plain and unambiguous language of the contract itself. Unambiguous contract language must be interpreted and enforced as written because an unambiguous contract reflects the parties' intent as a matter of law. However, extrinsic evidence may be submitted to determine the intent of the parties if the contract language is ambiguous. A patent ambiguity arises from the face of the document. A contractual term is ambiguous on its face if the term is equally susceptible to more than a single meaning. A latent ambiguity exists when the language in a contract appears to be clear and intelligible and suggests a single meaning but other facts create the necessity for interpretation of a choice among two or more possible meanings. Courts may not create ambiguity when the terms of a contract are clear, and courts cannot ignore portions of a contract to declare an ambiguity. The rule of reasonable expectations, which involves determining what the parties reasonably expected when forming a contract, does not apply when interpreting an unambiguous contract because a policyholder cannot be said to have reasonably expected something different from the clear language of the contract. In this case, the Court of Appeals erred when it referred to the purported ambiguity in the contractual language as a "latent" ambiguity; moreover, the Court of Appeals erred by finding any ambiguity.

         2. A CBA is interpreted under principles of contract law, and it is presumed that the written agreement encompasses the whole agreement of the parties. Absent a contrary intent, contractual obligations therefore end when the bargaining agreement terminates. When a contract is silent regarding the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life. Under M&G Polymers USA, LLC v Tackett, 574 U.S. (2015), there is also no presumption of vesting based on provisions that: (a) tie eligibility for retirement health benefits to eligibility for a pension, (b) enable continuation of a surviving spouse's healthcare coverage following the death of the retiree, and (c) specify that the employer will pay a retiree's insurance once he or she reaches age 65 when employees could retire at age 55. Accordingly, courts may not infer that the parties likely intended benefits that accrue upon achievement of retiree status to continue as long as the beneficiary remains a retiree; under CNH Indus NV v Reese, 583 US___ (2018), those inferences may not be used to render a CBA ambiguous because such inferences are inconsistent with the ordinary principles of contract law.

         3. In this case, none of the CBAs specified that defendant agreed to provide lifetime and unalterable healthcare benefits; if the parties had intended such an outcome, they could have expressed that intent in the agreements, but they did not. The general durational clauses in the CBAs controlled because the CBAs did not specify an alternative ending date for healthcare benefits. In that regard, because the CBAs each contained a three-year durational provision, each CBA guaranteed benefits only until the agreement expired. Moreover, given the provisions indicating that each CBA contained all agreements, express or implied, the most reasonable interpretation was that the contractual right to retiree healthcare benefits expired when the relevant CBA expired. Contrary to the dissent's argument, the CBAs did not contain a patent ambiguity. The surviving-spouse, supplemental-care, and subsequent-employment provisions did not render the CBAs ambiguous because each of the events addressed in these provisions could occur during the three-year duration of the CBAs. That each of the events could also have occurred beyond the CBAs' durational terms did not support the conclusion that the parties intended coverage to extend in perpetuity. Specifically, the surviving-spouse provision governed the eligibility of the spouse when the retiree died; it did not determine the duration of the retiree's or spouse's benefits. In that way, the surviving-spouse provision did not evidence an intention that the benefits would continue beyond the three-year term specified by the general durational clause. The supplemental-care provision did not guarantee benefits for the duration of the agreement but, instead, conditioned continued benefits on enrollment in Medicare if a retiree reached the age of 65 when the CBA was in effect. The subsequent-employment provision also did not create an ambiguity as to whether the parties intended that retiree benefits would vest; the provision did not necessarily imply that retirees would receive healthcare benefits beyond the three-year durational term because a retiree might alternatively obtain coverage through another employer before the three-year term of the CBA expired. Taken as a whole, the clauses did not reasonably and clearly indicate that the retiree benefits were to continue past the duration of the CBAs. Contrary to the dissent's conclusion, the agreements did not contain provisions that tied benefits to events that could only occur or would almost certainly not occur until after the CBAs expired. Accordingly, the Court of Appeals erred by concluding that although the CBAs did not contain language explicitly promising indefinite benefits, other contract language (the surviving-spouse, supplemental-care, and subsequent-employment provisions) created an ambiguity regarding whether the healthcare benefits were vested. Because the CBAs were not ambiguous with regard to the duration of retiree healthcare benefits, the Court of Appeals erred by concluding that the trial court properly examined extrinsic evidence to determine whether retirees were entitled to lifetime benefits.

         Reversed and remanded to the trial court for entry of an order granting summary disposition to defendant.

         Chief Justice McCormack, joined by Justice Bernstein, dissenting, agreed with the majority's understanding of the recent federal caselaw but disagreed with the majority's conclusion that the CBAs were unambiguous. When a contract lacks explicit terms on the duration of retiree benefits, implied terms or industry practice may show that the parties intended those benefits to extend beyond the contract's general durational period. For example, ambiguity can arise when a CBA links eligibility for a particular right to an event that would almost certainly occur after the expiration of the agreement. In this case, the surviving-spouse, supplemental-care, and subsequent-employment provisions implied that defendant and the unions intended retiree healthcare benefits to last for those retirees' entire retirements; that is, for their lives. Although those provisions did not irreconcilably conflict with the three-year durational clause, for most employees who retired during a CBA's three-year term, the triggering events were almost certain to occur beyond the expiration of that term. These specific provisions, the nature of the benefits, and the lack of a provision tying the benefits to the general durational clause (unlike in Reese) created ambiguity because the CBAs were equally susceptible to being read as promising retirement healthcare for retirement. Because Justice McCormack concluded that the CBAs were ambiguous about whether defendant promised retiree healthcare benefits for more than the three- year term, she would have remanded the case to the trial court for the fact-finder to determine the duration issue after considering any extrinsic evidence introduced by the parties.

          Justice Cavanagh did not participate in the disposition of this case because the Court considered it before she assumed office.

         BEFORE THE ENTIRE BENCH (except Cavanagh, J.)

          OPINION

          MARKMAN, J.

         The issue here is whether plaintiffs' collective-bargaining agreements (CBAs) with defendant, Macomb County, granted plaintiffs a vested right to lifetime and unalterable retirement healthcare benefits. The trial court held that while plaintiffs are entitled to lifetime healthcare benefits, defendant can make reasonable modifications to those benefits. On appeal, the Court of Appeals held that plaintiffs are entitled to lifetime and unalterable healthcare benefits and that such benefits cannot be modified absent plaintiffs' consent. Because we conclude that the CBAs did not grant plaintiffs a vested right to lifetime and unalterable benefits, we reverse the judgment of the Court of Appeals and remand to the Macomb Circuit Court for entry of an order granting summary disposition to defendant consistent with this opinion.

         I. BACKGROUND

         This is a class action brought on behalf of approximately 1600 unionized Macomb County employee retirees who worked for defendant under various CBAs dating back to 1989. Plaintiffs claim that in 2009 and 2010 defendant breached these agreements by reducing and altering their healthcare benefits; plaintiffs now seek both monetary damages and injunctive relief. It is undisputed that each CBA contained an express three-year durational provision and that none of the CBAs contained a provision expressly granting a vested right to lifetime and unalterable retirement healthcare benefits. The trial court granted defendant's motion for summary disposition, concluding that while plaintiffs are entitled to lifetime healthcare benefits under the agreements, defendant is permitted to make reasonable modifications to those benefits. The Court of Appeals affirmed in part and reversed in part, concluding that while plaintiffs are entitled to lifetime healthcare benefits, those benefits cannot be modified absent plaintiffs' consent. Kendzierski v Macomb Co, 319 Mich.App. 278, 286-289; 901 N.W.2d 111 (2017). We ordered and heard oral argument on whether to grant defendant's application for leave to appeal. Kendzierski v Macomb Co, 501 Mich. 966 (2018).

         II. STANDARDS OF REVIEW

         "This Court reviews de novo a trial court's decision on a motion for summary disposition." Bazzi v Sentinel Ins Co, 502 Mich. 390, 398; 919 N.W.2d 20 (2018). "This Court also reviews de novo questions of . . . the proper interpretation of a contract." Id.

         III. ANALYSIS

         It is undisputed that all of the CBAs contain the following provisions or provisions that are "materially similar":[1]

Retirees: The Employer will provide fully paid Blue Cross/Blue Shield Hospital-Medical coverage to the employee and the employee's spouse, after eight (8) years of service with the Employer, for the employee who leaves employment because of retirement and is eligible for and receives benefits under the Macomb County Employees' Retirement Ordinance . . . .
Coverage shall be limited to the current spouse of the retiree, at the time of retirement, provided such employee shall retire on or after January 1, 1974. Coverage for the eligible spouse will terminate upon the death of the retiree unless the retiree elects to exercise a retirement option whereby the eligible current spouse receives applicable retirement benefits following the death of the retiree.
Coverage shall be limited to Blue Cross/Blue Shield MVF1 Master Medical with ML Rider, or its substantial equivalence.
Retired employees and/or their current spouse, upon reaching age 65, shall apply if eligible, and participate in the Medicare Program at their expense as required by the Federal Insurance Contribution Act, a part of the Social Security Program, at which time the Employer's obligation shall be only to provide "over 65 supplemental" hospital-medical benefit coverage. Failure to participate in the aforementioned Medicare Program, shall be cause for termination of Employer paid coverage of applicable hospital-medical benefits, as outlined herein for employees who retire and/or their current spouse.
Employees who retire under the provisions of the Macomb County Employees' Retirement Ordinance, and/or their current spouse, who subsequently are gainfully employed, shall not be eligible for hospital-medical benefits, during such period of gainful employment . . . .
The parties acknowledge that during the negotiations which resulted in this Agreement each had the unlimited right and opportunity to make demands and proposals with respect to all subjects of collective bargaining and that all agreements and understandings, expressed, implied, written or oral, are set forth in this Agreement. This Agreement expresses the complete understanding of the Parties on the subject of wages, working conditions, hours of work, benefits and conditions of employment.
This Agreement shall continue in full force and effect until December 31, 2007. [Paragraph lettering omitted.]

         The issue is whether the CBAs granted plaintiffs vested rights to lifetime and unalterable retirement healthcare benefits. In Int'l Union, United Auto, Aerospace & Agricultural Implement Workers of America (UAW) v Yard-Man, Inc, 716 F.2d 1476, 1478 (CA 6, 1983), the United States Court of Appeals for the Sixth Circuit held that the CBAs at issue in that case granted the plaintiffs vested rights to lifetime and unalterable retirement healthcare benefits. However, as recognized by Arbuckle v Gen Motors LLC, 499 Mich. 521; 885 N.W.2d 232 (2016), the United States Supreme Court in M & G Polymers USA, LLC v Tackett, 574 U.S. ___; 135 S.Ct. 926; 190 L.Ed.2d 809 (2015), overruled Yard-Man (and its progeny) in an opinion that

characterized [Yard-Man and its progeny] as "placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements." Those decisions, the Supreme Court explained, "distort the text of [a collective-bargaining] agreement and conflict with the principle of contract law that the written agreement is presumed to encompass the whole agreement of the parties." Indeed, basic principles of contract interpretation instruct that "courts should not construe ambiguous writings to create lifetime promises" and, absent a contrary intent, that "contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement." For "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." [Arbuckle, 499 Mich. at 540, quoting Tackett, 574 U.S. at at ___; 135 S.Ct. at 935-937 (quotation marks omitted; second alteration in Arbuckle).][2]

Tackett specifically rejected many of the same arguments raised by plaintiffs in the instant case. For example, Tackett rejected Yard-Man's presumption that a general durational clause, which specifies when a contract will expire, states nothing about the vesting of retiree benefits.[3] Tackett, 574 U.S. at ___; 135 S.Ct. at 937. It also rejected the presumption of vesting based on provisions that: (a) tie eligibility for retirement health benefits to eligibility for a pension, (b) enable continuation of a surviving spouse's healthcare coverage following the death of the retiree, and (c) specify that the employer will pay a retiree's insurance once he or she reaches age 65 when employees could retire at age 55.[4]Id. At ___; 135 S.Ct. at 937.

         Yard-Man, 716 F.2d at 1482, held that "if [employees] forego wages now in expectation of retiree benefits, they would want assurance that once they retire they will continue to receive such benefits"; "[a]s such, it is unlikely that such benefits . . . would be left to the contingencies of future negotiations." It further held that "when . . . parties contract for benefits which accrue upon achievement of retiree status, there is an inference that the parties likely intended those benefits to continue as long as the beneficiary remains a retiree." Id. Tackett, 574 U.S. at ___; 135 S.Ct. at 935, 937, rejected these inferences as "inconsistent with ordinary principles of contract law," explaining that "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 that the Yard-Man Court "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." Furthermore, Tackett held that YardMan failed to recognize the traditional principle that "contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement"[5] and that while "a collective-bargaining agreement may provide in explicit terms that certain benefits continue after the agreement's expiration[, ] . . . 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." Id. at ___; 135 S.Ct. at 937 (quotation marks, citation, and brackets omitted).

         Post-Tackett, "the Sixth Circuit [in Reese v CNH Indus NV, 854 F.3d 877, 882-883 (CA 6, 2017), ] held that the same Yard-Man inferences it once used to presume lifetime vesting can now be used to render a collective-bargaining agreement ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about lifetime vesting." CNH Indus NV v Reese, 583 US, ___; ___138 S.Ct. 761, 763; 200 L.Ed.2d 1 (2018). The United States Supreme Court characterized this new analysis as "Yard-Man re-born, re-built, and re-purposed for new adventures" and again reversed. Id. at ___; 138 S.Ct. at 763 (quotation marks and citation omitted). It held that the Yard-Man inferences could not be used to render a CBA ambiguous. Id. at ___; 138 S.Ct. at 763. Finally, the Supreme Court held that the CBA at issue was unambiguous and that it did not create lifetime healthcare benefits for retirees. Id. at ___; 138 S.Ct. at 766. It observed:

Tellingly, no other Court of Appeals would find ambiguity in these circumstances. When a collective-bargaining agreement is merely silent on the question of vesting, other courts would conclude that it does not vest benefits for life. Similarly, when an agreement does not specify a duration for health care benefits in particular, other courts would simply apply the general durational clause. And other courts would not find ambiguity from the tying of retiree benefits to pensioner status. . . .
Shorn of Yard-Man inferences, this case is straightforward. The 1998 agreement contained a general durational clause that applied to all benefits, unless the agreement specified otherwise. No provision specified that the health care benefits were subject to a different durational clause. . . . If the parties meant to vest health care benefits for life, they easily could have said so in the text. But they did not. And they specified that their agreement "dispose[d] of any and all bargaining issues" between them. Thus, the only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004. "When the intent of the parties is unambiguously expressed in the contract, that expression controls, and the court's inquiry should proceed no further." [Id. at ___; 138 S.Ct. at 766 (citations omitted; alteration inReese).][6]

         The Court of Appeals in the instant case did exactly what the Sixth Circuit did in Reese, i.e., it relied on the Yard-Man inferences to find the CBAs ambiguous and then resorted to extrinsic evidence to find in favor of lifetime healthcare benefits.[7] Although this Court is not bound to follow the United States Supreme Court's opinion in Reese, we choose to follow it because it is fully consistent with Michigan's own principles of contract law.[8]

         "Our goal in contract interpretation is to give effect to the intent of the parties, to be determined first and foremost by the plain and unambiguous language of the contract itself." Wyandotte Electric Supply Co v Electrical Technology Sys, Inc, 499 Mich. 127, 143-144; 881 N.W.2d 95 (2016). "If the contractual language is unambiguous, courts must interpret and enforce the contract as written, because an unambiguous contract reflects the parties' intent as a matter of law." In re Smith Trust, 480 Mich. 19, 24; 745 N.W.2d 754 (2008). "However, if the contractual language is ambiguous, extrinsic evidence can be presented to determine the intent of the parties." Id.

         "A contractual term is ambiguous on its face only if it is equally susceptible to more than a single meaning." Barton-Spencer v Farm Bureau Life Ins Co of Mich, 500 Mich. 32, 40; 892 N.W.2d 794 (2017). In addition, "if two provisions of the same contract irreconcilably conflict with each other, the language of the contract is ambiguous." Klapp v United Ins Group Agency, Inc, 468 Mich. 459, 467; 663 N.W.2d 447 (2003).[9] However, "ambiguity is a finding of last resort . . . ." Mayor of the City of Lansing v Pub Serv Comm, 470 Mich. 154, 165 n 6; 680 N.W.2d 840');">680 N.W.2d 840 (2004). That is, "a finding of ambiguity is to be reached only after all other conventional means of interpretation have been applied and found wanting." Id. at 165 (quotation marks, citation, and brackets omitted). "[W]e will not create ambiguity where the terms of the contract are clear." Frankenmuth Mut Ins Co v Masters, 460 Mich. 105, 111; 595 N.W.2d 832 (1999). "[C]ourts cannot simply ignore portions of a contract . . . in order to declare an ambiguity." Klapp, 468 Mich. at 467.

         "A fundamental tenet of our jurisprudence is that unambiguous contracts are not open to judicial construction and must be enforced as written." Rory v Continental Ins Co, 473 Mich. 457, 468; 703 N.W.2d 23 (2005). "Courts enforce contracts according to their unambiguous terms because doing so respects the freedom of individuals freely to arrange their affairs via contract." Id. "The general rule of contracts is that competent persons shall have the utmost liberty of contracting and that their agreements voluntarily and fairly made shall be held valid and enforced in courts." Terrien v Zwit, 467 Mich. 56, 71; 648 N.W.2d 602 (2002) (quotation marks, citation, and brackets omitted). "When a court abrogates unambiguous contractual provisions based on its own independent assessment of 'reasonableness,' the court undermines the parties' freedom of contract." Rory, 473 Mich. at 468-469. "This approach, where judges divine the parties' reasonable expectations and then rewrite the contract accordingly, is contrary to the bedrock principle of American contract law that parties are free to contract as they see fit, and the courts are to enforce the agreement as written absent some highly unusual circumstance, such as a contract in violation of law or public policy." Wilkie v Auto-Owners Ins Co, 469 Mich. 41, 51; 664 N.W.2d 776 (2003). "[T]he rule of reasonable expectations clearly has no application when interpreting an unambiguous contract because a policyholder cannot be said to have reasonably expected something different from the clear language of the contract." Id. at 62.[10]

         These contract principles apply to CBAs just as they do with regard to any other contract. As this Court has explained:

The foundational principle of our contract jurisprudence is that parties must be able to rely on their agreements. This principle applies no less strongly to collective bargaining agreements: when parties to a collective bargaining agreement bargain about a subject and memorialize the results of their negotiation in a collective bargaining agreement, they create a set of enforceable rules-a new code of conduct for themselves-on that subject. A party to the collective bargaining agreement has a right to rely on the agreement as the statement of its obligations on any topic covered by the agreement. [Macomb Co v AFSCME Council 25, 494 Mich. 65, 80; 833 N.W.2d 225 (2013) (quotation marks and citations omitted).]

         In Harper Woods Retirees Ass'n v City of Harper Woods, 312 Mich.App. 500, 512-513; 879 N.W.2d 897 (2015), the Court of Appeals "conclude[d] that the [United States] Supreme Court's reasoning in Tackett is consistent with Michigan's contract jurisprudence regarding CBAs, which applies with equal force in both the public and private sectors." The Court of Appeals rejected the plaintiffs' argument that "their right to the specific healthcare benefits included in their CBAs and contracts continued indefinitely after retirement, regardless of whether the explicit terms of the contracts indicated that the parties intended those benefits to continue after the agreements expired." Id. at 511. Instead, "the language governing retiree healthcare benefits [must] indicate[] that the parties intended the same benefits to continue after expiration of the agreements . . . ." Id. at 513. If the language does not so indicate, "the benefits terminated after expiration of the agreements, so that defendant was permitted to alter the benefits under future contracts." Id.

         Post-Tackett, the Sixth Circuit addressed this same issue in Gallo v Moen Inc, 813 F.3d 265 (CA 6, 2016), cert den 580 U.S. (2016), and concluded that the CBAs did not provide lifetime and unalterable ...


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