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Volvo Group North America LLC may not unilaterally modify a retiree group’s health benefits after the collective bargaining agreement has expired unless it follows the agreement’s dictates, the U.S. Court of Appeals for the 4th Circuit has ruled. A unanimous panel on July 11 affirmed a March 2010 judgment by Judge James P. Jones of Western District of Virginia, which followed a jury verdict. The 2005 collective bargaining agreement at issue in Quesenberry v. Volvo Trucks North America Retiree Healthcare Benefit Plan is between Volvo and the union at a Volvo plant in Pulaski County, Va. The United Automobile, Aerospace, and Agricultural Workers of America and UAW Local 2069 have represented the plant’s employees and retirees since the mid-1970s. The 2005 agreement called for Volvo to “continue coverage under the Volvo-UAW health, dental and prescription drug programs” for retiree participants “for the duration of this Agreement.” The agreement capped Volvo’s financial contribution for retiree health insurance expenses at an average of $13,606 per year for each non-Medicare-eligible retiree and $3,292 for each Medicare-eligible retiree. Volvo also agreed to create a Voluntary Employees’ Beneficiary Association trust and contribute $3.943 million for above-cap costs. In 2005, Volvo estimated that above-cap costs would add up to about $400,000 by the time of the collective bargaining agreement’s Jan. 31, 2008 expiration. If the trust was projected to be depleted within a calendar year, the agreement called for Volvo and the union to meet to discuss ways to cut healthcare costs. If negotiations failed, Volvo could charge each retiree for above-cap costs, according to a formula. The collective bargaining agreement that went into effect on March 17, 2008, did not include a negotiated health benefit plan for employees who retired before March 17 of that year. In December 2008, Volvo announced several unilateral changes to retiree coverage effective March and July 1, 2009. In January 2009, the plaintiffs filed a purported class action against Volvo Group North America Inc. and Volvo Trucks North America Retiree Healthcare Benefit Plan. The complaint alleged that Volvo violated the Labor Management Relations Act and the Employee Retirement Income Security Act. The purported class included several hundred individuals who had retired before the 2008 agreement’s effective date. The plaintiffs sought a permanent injunction barring Volvo from unilaterally modifying retiree health benefits, and an award of the health benefits they would have received if Volvo didn’t make the unilateral changes. In March 2010, a jury found that it was not the joint intent of Volvo and the union to allow Volvo to unilaterally change retiree health insurance benefits after the 2005 agreement expired. The district court’s ensuing judgment enjoined Volvo and its plan from “unilaterally terminating or modifying the health care benefits provided to the Class.” The court ruled that these defendants were “directed and required to restore such benefits to the extent of any unilateral changes previously made.” In September 2010, Judge Jones awarded the plaintiffs $855,348.75 in attorney fees and $103,371.17 in expenses. Judge J. Harvie Wilkinson III wrote the 4th Circuit opinion, joined by judges G. Steven Agee and Robert King. Wilkinson determined that the trust’s cost paragraph allows Volvo to change retirees’ health benefits only if the trust is projected to be exhausted within one year and Volvo and the union could not reach another agreement. He noted that Volvo was required to contribute a $1.585 million trust on the very last day of the 2005 collective bargaining agreement’s term. Given that requirement, it would be “almost impossible” to project the trust to run out during the 2005 agreement’s term, he determined. “To contend that the [trust] and it’s negotiated mechanism were good only until the expiration of the 2005 [collective bargaining agreement] thus requires an overactive imagination,” Wilkinson wrote. He concluded by noting that because the case is about a collective bargaining agreement, “the question is simple: what did the parties jointly intend? Here, the Cost provision clearly contemplates a mechanism that remains active beyond the expiration date of the agreement and therefore as a matter of law operates as a limitation on Volvo’s right to modify retiree health benefits unilaterally.” Julia Penny Clark, a partner at Washington’s Bredhoff & Kaiser who represented the plaintiff class, said the ruling clarifies in the 4th Circuit that the question of retiree health benefits under a collective bargaining agreement is an issue of contract like any other issue of contract. “The question is: What did the parties intend?” Clark said. Clark said that other circuits are also generally considering what the parties intended in similar cases. “The general approach in collectively bargained retiree health benefits cases is that this is a contract issue and the court’s task is to figure out what the parties intended,” Clark said. Matthew Hank, one of two Philadelphia partners at San Francisco-based Littler Mendelson who argued for the Volvo entities, declined to comment. Thomas Bender of Littler, who handled the bulk of the Volvo arguments before the 4th Circuit, did not respond to requests for comment. Nor did Volvo Group North America respond to requests for comment. Sheri Qualters can be contacted at [email protected].

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