[Marxism] WSJ: Companies sue/screw retirees

["Eli Stephens" <elishastephens@xxxxxxxxxxx>]

Companies Sue Union Retirees
To Cut Promised Health Benefits
Firms Claim Right to Change
Coverage, Attempt to Pick
Sympathetic Jurisdictions
The Process Server Pays a Call

By ELLEN E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL
November 10, 2004; Page A1

When a deputy sheriff came to his door with a court summons, George Kneifel,
a retiree in Union Mills, Ind., was mystified. His former employer was suing
him.

The employer, beverage-can maker Rexam Inc., had agreed in labor contracts
to provide retirees with health-care coverage. But now the company was
asking a federal judge to rule that it could reduce or eliminate the
benefit.

Many companies have already cut back company-paid health-care coverage for
retirees from their salaried staffs. But until recently, employers generally
were barred from touching unionized retirees' benefits because they are
spelled out in labor contracts. Now, some are taking aggressive steps to
pare those benefits as well, including going to court.

In the past two years, employers have sued union retirees across the
country. In the suits, they ask judges to rule that no matter what labor
contracts say, they have a right to change the benefits. Some companies also
argue that contract references to "lifetime" coverage don't mean the
lifetime of the retirees, but the life of the labor contract. Since the
contracts expired many years ago, the promises, they say, have expired too.

The companies taking such steps remain a minority. Most big employers
continue to provide the retiree health coverage spelled out in labor
contracts. But the number of employers using the courts to attempt to reduce
benefits for union retirees is rising, and some have been successful.
"There's absolutely no doubt that there's been an increasing number of cases
over the past three years," says Richard Brean, associate general counsel of
the United Steelworkers of America.

They have little to lose by trying. Typically, as such legal cases drag on,
the employers save money as some of the retirees, who have to pay growing
portions of their health-care costs, forgo costly care, drop out of the
plans or die. If companies lose in court, the worst that happens is they
have to resume paying benefits. They don't face punitive damages or
penalties. And they may not have to resume benefits for those retirees who
dropped out of the health plans.

What's more, their earnings get a pop. That's because at the same time as
they sue, employers typically announce reductions in the retirees' benefits.
Doing so entitles them to lessen the liabilities carried on their books.
Lower liabilities translate to higher earnings.

The retirees, by contrast, often find themselves in a bind -- unsure of
their recourse and facing, as they age, the court system's typical long
waits for legal resolution. The U.S. Labor Department is of little help.
Retired workers "aren't our constituents anymore," says a spokeswoman for
the department.

Unions often do go to bat for retirees. The United Auto Workers and the
Steelworkers have been the most active in filing suits to protect retirees
whose benefits a company has unilaterally changed. But unions aren't allowed
to strike or file unfair-labor-practice complaints on behalf of retirees.

Employers that want to cut union retirees' health coverage or make retirees
pay a larger portion could just impose changes and wait to be sued. But by
suing first, they stand a chance of choosing the jurisdiction. This is
important, because federal circuits' appellate courts tend to take differing
positions in these disputes. Indeed, the unsettled nature of the law on
these issues -- with employers' arguments sometimes succeeding and sometimes
not -- may be a factor prompting some companies to have a go at gaining the
legal right to change benefits.

RELATED ARTICLE
? Page One: Plaintiff Cry: When Retirees Sue an Ex-Employer
 

One afternoon last December, Basil Chapman was sitting on his porch in
Barboursville, W.Va., with his dog, Bo, when a union representative phoned
the retiree to say an executive of his former employer wanted to speak to
him. Mr. Chapman called the executive, at ACF Industries Inc., a
railroad-car maker where Mr. Chapman worked for 38 years. He was told ACF
was going to change health coverage, making retirees pay for a portion that
previously was free.

"We have a contract. You can't do that," Mr. Chapman said, according to
court papers later filed by ACF. "We will file in federal court against you
b-----ds." Asked about this, Mr. Chapman, who is 60, says he didn't swear on
the phone.

The next Monday, ACF, which financier Carl Icahn controls through an
investment vehicle, sued Mr. Chapman in federal district court in St. Louis.
The company asked the court to rule that it had the right to change or
terminate health coverage for 678 retirees and their dependents. ACF said it
was suing to protect itself, noting that "defendant Chapman has already
informed ACF that he plans to file a lawsuit concerning the amendments of
the plan."

"I can't understand why they're picking on me," Mr. Chapman says. "I'm just
a retired guy who was sitting on my porch."

CO-PAY BLUES
This week, the Online Journal looks at the financial burdens facing
health-care consumers who have insurance and offers advice on handling
medical expenses.

Do you have questions or ideas about selecting health-care coverage and
managing your family's costs? We invite you to participate in a discussion
with health-insurance and benefits experts.

Monday: The lines between HMOs and PPOs are blurring. Here's how to choose
the right plan option for you.

Tuesday : Dr. Benjamin Brewer, in his Doctor's Office column, talks about
how insurance coverage affects the patients that doctors agree to service.

Thursday : Fiscally Fit columnist Terri Cullen focuses on the quandary
patients face when health-care providers charge more than what insurers will
pay.

Employers that sue retirees name one person or a handful. They may choose
people at random, retirees who have complained, or people who were active in
the union that negotiated the contract at issue. Mr. Chapman, who repaired
equipment and stenciled names on railroad cars at ACF, also headed a
Steelworkers bargaining committee. The named defendants represent the
"class" of retirees.

Key Contract Element

Mr. Chapman says health coverage for retirees was a key element of labor
contracts he helped negotiate in 1995. Up to then, although the company paid
100% of hospitalization and surgical coverage, retirees paid for major
medical. But their premiums for that coverage had risen so high that many
had dropped it.

To make health coverage affordable for future retirees, the union accepted
lower starting pay for new workers in exchange for lower-cost major medical
coverage for retirees. According to the contract, any employee retiring
during the term of the agreement "will contribute a flat $100 per month for
life towards the cost of such coverage. The Company will pay any additional
required costs."

The company doesn't dispute that the contract says that, but it says that
"$100 per month for life" referred only to the major medical coverage, not
explicitly to the hospital/surgical portion.

In addition, it believes the agreements to provide health coverage to
retirees expired with the contracts, said Marc Weitzen, general counsel for
ACF at Icahn & Co. in New York, in an interview.

The retirees, represented by the union, countersued to dismiss the
complaint. They contended ACF had gone through "the charade of telephoning
retiree Mr. Chapman about the cuts, just so it could provoke a predictable
negative reaction and then use the reaction to immediately sue."

The retirees said ACF had sued in St. Louis, which is part of the 8th
federal circuit, because it "apparently believes that the 8th Circuit is
more favorable to employers in retiree medical benefits cases, and
apparently feels that its chances are improved if it makes the retirees
litigate hundreds of miles from their homes."

CREATIVE STRATEGIES
Companies that cut retiree health benefits promised in writing may use one
or more arguments or tactics:

? Escape Clause: Insert sentence in benefit plan saying company "reserves
the right" to change benefits.
 
? 'Life' Line: Argue that "lifetime coverage" refers to life of the
contract, not lives of retirees.
 
? Fine Print: Say that retirees signing health-plan enrollment forms waived
prior agreements.
 
? Trip to Court: Sue retirees, ask court to declare company has right to cut
benefits.
 
Source: WSJ research

Most of ACF's retirees live in West Virginia, in the 4th Circuit, where a
court favored union retirees in an earlier decision. The retirees asked the
judge to dismiss the case or transfer it to the southern district of West
Virginia.

Mr. Weitzen at Icahn & Co. said ACF sued in Missouri because it administers
the benefits plans from there. He added, "As with many other U.S.
businesses, ACF believes it has the right to pass along certain of its
health-insurance costs to retirees."

It is legal and common for litigants to try to pick a favorable
jurisdiction. If two parties sue each other, the courts generally hear the
case that's filed first. But a court can dismiss or transfer a case if it
believes a company is "forum shopping" or suing retirees as a pre-emptive
strike to deprive them of their rights, as "natural plaintiffs," to sue in
the court they would choose.

That happened in this case. In August, the court in St. Louis -- saying it
appeared ACF's move "resulted in a proverbial race to the courthouse in
order to deprive defendants of their choice of forum" -- moved the suit to
federal court in Huntington, W.Va. The case is ongoing.

But a different court came to the opposite conclusion regarding Rexam,
illustrating why employers make these legal thrusts at retirees.

In early 2002, Rexam raised retirees' share of the cost of prescription
drugs. "For people getting a pension of $300 to $400 a month, it ate their
whole pension," says Mr. Kneifel, the retiree in Union Mills, Ind., who is
65.

For more than a year, retirees complained to the company that it had no
right to change negotiated agreements, which stated that "Company-paid major
medical coverage will be provided for all retirees," and specified what the
retirees' costs would be.

'Reserves the Right'

Rexam responded that a booklet describing the coverage contained a clause
that said the company "reserves the right to amend, modify or discontinue
the plan in the future in conformity with applicable legislation."

The retirees said the clause meant that if government legislation or
regulations changed, then the plan might have to be modified accordingly. It
didn't give the company a right to unilaterally change the agreement,
retirees said, pointing to another clause specifically stating that the
right to modify the benefits "was subject to any applicable collective
bargaining agreement."

In May 2003, Rexam sued the retirees, asking a federal court to declare that
it had the right to change their benefits.

It filed in Minneapolis. The appearance of a deputy sheriff bearing a
summons to court 475 miles away was a shock to Mr. Kneifel. "I'm glad I was
home when they came, because my wife had a stroke about six years ago," he
says. "Suing retirees is a cowardly way to go about the whole thing."

The retirees, represented by the Steelworkers, countersued in Toledo, Ohio,
asking that the case be dismissed or transferred there. They said Minnesota
was home to only 100 of the 3,600 retirees and that Rexam had made a
pre-emptive legal strike to choose the jurisdiction. The business, which was
called American National Can Co. before its 2000 purchase by Rexam Inc., is
based in Chicago and has offices in Charlotte, N.C. It is a subsidiary of
Britain's Rexam PLC.

The judge in Minneapolis rejected the retirees' arguments. Because they had
not been planning to sue Rexam, they couldn't claim Rexam was suing in a
pre-emptive strike, said Judge Ann Montgomery. She let the case stay in
Minneapolis because Rexam employs 115 people in St. Paul and has retirees in
Minnesota.

Judge Montgomery also said she was allowing the suit to move forward "in the
interests of justice." She cited a liability for the benefits on Rexam's
balance sheet and said the company was harmed "because it cannot lower the
liability unless it reduces the retirees' benefits." The case is pending.

A Rexam spokesman said with health-care costs rising, the company "must do
what we can to address these costs" to remain competitive, but will continue
to provide retirees with fair coverage.

Gradual Erosion

The erosion of legal protection for retiree health benefits has been
gradual. When medical costs began to rise steeply in the 1980s, employers
first started to cut benefits for salaried retirees. If sued, employers
pointed to clauses they had added to the health plans' technical documents.
The clauses said the employer reserved the right to change the benefits.

Retirees complained that the clauses were buried in long technical documents
they often didn't know existed. (Companies must provide employees a summary
of these documents when they first become health-plan participants; the
summaries may or may not include the clauses at issue.) The retirees also
pointed to employer literature referring to lifetime coverage. Nonetheless,
courts began accepting company arguments.

A key case involved cuts by General Motors Corp. in coverage it had offered
to 50,000 salaried employees over the years to induce them to retire early.
A 6th Circuit appellate court ruled in 1998 that what mattered weren't
brochures that advised prospective retirees that health coverage would be
provided "at GM's expense for your lifetime," but a clause in which GM
reserved the right to alter benefits. Although dissenting judges assailed
this reasoning, and the federal circuits remain divided about it, salaried
retirees have steadily lost in benefits cases ever since.

Union retirees were more secure because their benefits were part of
negotiated contracts. But after the GM ruling, more employers began to argue
that that decision's logic applied to union retirees, as well, and some
courts agreed.

Meanwhile, over the years some employers also have argued that promises of
lifetime coverage expired when the contracts expired, or were canceled out
by clauses noting how long the contracts would run. Initially, courts
rejected those arguments, saying general "duration clauses" in contracts
refer simply to the period of the contract, and pertain to salary and
benefits for active employees, not to benefits for retirees.

But some courts in the past decade have accepted these employer arguments.
The federal circuits are split.

Retirees who go to court on their own to contest cuts in their benefits face
a hard road.

Employers generally use a combination of arguments when they unilaterally
change union retirees' health coverage and file suit against the retirees.

Serving Papers

Asarco Inc. told retirees in mid-2003 that it was raising their health-care
premiums. As it did so, the copper company sent summonses to some retirees
in Arizona, where many live, telling them they were defendants in a suit it
was filing in Phoenix.

The suit pointed to a clause in health-plan documents saying, "The Company
reserves the right to amend or terminate the Plans at any time for any
reason....even after you retire."

In addition, Asarco pointed to general "duration clauses" in the contracts,
which said the agreements expired when the labor contracts did. The
agreements that expired, the company said, included the one to provide
retirees with health coverage until they qualify for Medicare.

Retired Asarco miner Chuck Yarter learned he was being sued when he got a
call from a process server trying to find his remote home in the Sonora
Desert near Marana, Ariz. Mr. Yarter, 61, says he told the man how to find
his modest 625-square-foot house, which sits at the end of a dirt road, with
a distant view of the open-pit Silver Bell copper mine where Mr. Yarter was
a mechanic on heavy equipment.

He smiles recalling the visit: His black dog, Lady, wouldn't let the visitor
out of his car. The process server handed the papers through the car window
before trundling away through the saguaro and mesquite. "I've never been
served papers in my life," Mr. Yarter says.

In its July 8, 2003, letter to him and other retirees, Asarco, a unit of
Grupo Mexico SA, said: "As you know, the past several years have been very
difficult for the copper industry. The continuing low copper prices and
escalating medical costs force us to make these changes."

Mr. Yarter, who monitors copper prices on the Internet, says Asarco is just
making excuses. Copper prices have nearly doubled since the July 2003
letter, to about $1.36 a pound from 76 cents.

Asarco, in a statement, said it acted in response to "the constantly
escalating" cost of providing medical and drug coverage, saying it must
control costs because it can't control what it gets for its copper. It said
it continues to make coverage available "at a reasonable cost," declining
further comment because the case is in litigation.

Three unions filed a counterclaim on retirees' behalf against Asarco: the
Steelworkers, the International Brotherhood of Electrical Workers and the
International Chemical Workers. The retirees' suit says that the duration
clauses weren't meant to limit the retirement benefits of people who had
already retired, "as such retirement benefits were meant to last during
retirement independent of the expiration of agreements applicable to active
employees."

It added that the "alleged 'severe financial distress' has not prevented the
Company from paying its top management quite handsomely." And it said that
" 'unforeseen circumstances' do not justify a breach of contractual
obligations ... to persons living on fixed income who can ill-afford to pay
the costs the company has shifted upon them."

Since Asarco imposed the changes, Mr. Yarter's share of premiums,
deductibles and co-payments has grown to consume half of his $1,005 monthly
pension. He says he is staying in the plan anyway, because his wife,
Frances, has diabetes.

But Larry Bracamonte, 64, with a pension of $448 a month, is among Asarco
retirees who have dropped the plan as a result of the increase. He works at
a furniture store, and twice a month, he drives a van full of Arizona
retirees five hours to Algodones, Mexico, to buy prescription drugs more
cheaply than in the U.S. He says a neighbor can't afford even the lower-cost
Mexican drugs on her Asarco widow's pension of $54 a month, so she gets
drugs from a state program for low-income people.

Mr. Yarter says he's in better shape than many Asarco retirees. "I did all
the retirement planning you're supposed to do," he says. "I decided I could
afford to retire." After retiring, he studied computer programming and
obtained an associate's degree in systems administration.

Now he's looking for work, so far without success. "If the company kept its
promise, I'd be all right," he says. "Nobody ever thought the company would
try to renege on a contract like that."

Write to Ellen E. Schultz at ellen.schultz@xxxxxxx



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